Higher value labor dividend

Chinese IT engineers work on their laptop computers at a cartoon company in Shanghai, China, 14 April 2008. [Photo/IC]

There is an increasingly prevalent viewpoint that China's labor dividend that has bolstered its economic takeoff over the past decades will come to an end as the country's labor costs rise. This is an obsolete concept given that it equates labor with cheap labor instead of creative labor.

The rise in labor costs does not mean a decline in productivity. Developed countries have higher labor costs than China, but that does not mean their enterprises are weaker. Similarly, Vietnamese companies enjoy lower domestic labor costs than China's, but China's enterprises still enjoy a competitive edge over them.

The key to China's productivity lies in whether its enterprises can develop their core technologies and core competitiveness. Excessive preoccupation with profits from low-end manufacturing will not make them more competitive. Whether China can continue to benefit from its labor dividend amid the fierce international competition will be decided by whether its manufacturing sector can successfully make the transition from the low end to high end, from low efficiency to higher efficiency and from processing-based manufacturing to technology-based innovation.

There is no need for excessive concerns over the current rise in labor costs for domestic enterprises given that economic development is aimed at raising people's living conditions. Rising labor costs should become the incentive for companies to raise their efficiency and productivity. Companies that seek to continue low efficiency and productivity with a business-as-usual mindset will inevitably suffer in market competition.

China's labor remuneration is still at a relatively low level. A moderate rise in wages will not harm healthy companies. The reason some enterprises feel such pressures is because they have failed to progress to a higher level.

China's labor dividend should be based on creative and productive labor, rather than low-cost and low-efficiency labor.

The above is an abridgement of a China Youth Daily article published on Thursday.