SocGen: China's Labor Problems Are About To Get A Lot Worse

When Beijing launched its 4 trillion yuan stimulus back in 2008, it created millions of jobs in less than two quarters. But is also set off a series of economic problems like asset bubbles and bad loans that China is still trying to rein in.This time around, officials are being more careful about policy easing, with implications for employment growth. Societe Generale analyst Wei Yao says hiring is slowing and thinks the situation could worsen. Yao says the massive level of unemployment reminiscent of 2008 remains a risk scenario.The World Bank estimates that 49 million rural migrant workers in China lost their jobs between October 2008 and April 2009. But about 24 million of those jobs had been regained by April 2009. The almost 50 percent job recovery was driven by Beijing's massive stimulus. Another wave of lay-offs started to occur in 2011, Yao says:"Entering H2 2011, fixed asset investment in infrastructure went into outright contraction due to Beijing’s tightening on local government off-balance-sheet borrowing. News reports on the suspension of construction and lay-offs started to emerge. The problems were never completely resolved."Hiring slowed significantly since the beginning of 2011, according to Yao, who drew on the employment sub-index of the manufacturing PMI report and a quarterly survey from the Manpower Group. But construction wasn't the biggest problem. Construction accounts for about 10 percent of non-farm employment, while manufacturing employs nearly 25 percent. Moreover, construction is dominated by migrant workers over the age of 40, who are less likely to protest and more likely to return to farming.China has other labor problems too. The make-up of its labor force has changed significantly in the past few years, according to Yao. Young workers born after 1980 now account for over two-thirds of its 253 million rural migrant workers. Nearly 85 percent of those born after the 1980s have never worked on farmland. This section of the labor population has been prone to change jobs more frequently often chooses no work over manual labor.This change in mentality, along with the rising dependency ratio has created a labor shortage. Moreover, declines in job opening co-exist with a shortage in labor supply. Workers are largely unhappy with wage levels and employers are unhappy with the skills in the labor pool.What employers expect in 2011?The latest Manpower survey showed that only 20 percent of employers in major Chinese cities expect increases in total employment in the first quarter of 2012. This compares with 44 percent for Q1 2011, and 29 percent for the fourth quarter of 2011.Employers are expected to remain cautious to the end of 2012. Employers in the mining and construction sector are the least optimistic about hiring, followed by those in finance and real estate. Meanwhile, those in manufacturing, retail trade and wholesale sectors were more optimistic on hiring. .The central government is expected to support infrastructure growth this year, to keep the pace higher than the three percent growth reported in 2011. This is likely to keep losses in construction jobs manageable. The most frightening scenario for China's labor market is an external shock and Yao expects more labor protests as workers begin to demand fair treatment and more benefits than before.Now here is a chart from SocGen that shows real GDP growth and net employment outlook. Note: Net employment outlook is derived by taking the percentage of employers anticipating total employment to increase and subtracting from this the percentage expecting to see a decrease in employment at their location in the next quarter.Don't Miss: 6 Top Economists Answer - Is China Heading For A Soft Landing >Please follow Money Game on Twitter and Facebook.Join the conversation about this story »See Also:6 TOP ECONOMISTS ANSWER: Is China Heading Toward A Hard Landing?JIM O'NEILL: Here's More Proof That China Is Becoming More Of A Consumer-Driven EconomyCITI'S BUITER: There's A 50% Chance Of A Greek Exit From The Eurozone And Here's How It Would Happen

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