For 30 years, China has benefited from a surplus supply of workers that has kept the bargaining power in labor markets in the hands of employers and wages low. The U.S. Bureau of Labor Statistics estimates that, in 2006, hourly wages in the Chinese manufacturing sector were just 3% of the equivalent wages in the United States and a quarter of wages in competitor countries such as Mexico. But a surplus supply of labor and low wages is not a natural state of affairs; it is the product of three specific factors:

China has enjoyed the benefits of a demographic dividend. High rates of childbirth in the 1960s and 1970s meant millions of extra workers entering the labor markets in the 1980s and 1990s. With the single-child policy coming into effect at the start of the reform era, the number of births decreased. More than 30 years later, the consequence is a gradual decline in the number of young people entering the labor force. From the end of the decade on, the size of the labor force will start to shrink.

A mainly rural population at the beginning of the reform era and very low wages in the countryside meant a constant stream of country mice making the trek from the farm to the factory. According to the 2010 population census, 674 million people are still living in the countryside. But that doesn’t mean there are 674 million potential workers ready to step up to a place on the production line. The young, educated, able-bodied workers have already made the journey.

The joke in China is that the rural population that remains is like the sign asking passengers to give up their seats on the metro: old, sick, disabled, or pregnant.

China is a communist country. In theory, all things are run by the workers for the workers.

The Communist Party does not see the need for any organizations other than the Party-affiliated

All China Federation of Trade Unions (ACFTU) to represent the interests of workers. The ACFTU is famously spineless, with union reps often chosen directly by company management. The lack of effective representation or capacity to organize collective action has also kept a lid on blue-collar wages.

With an ageing workforce and a diminishing supply of surplus rural workers, China’s labor markets are entering a period of transition. Stories of worker shortages in the second half of 2009 segued rapidly into tales of trouble on the factory floor in the first half of 2010. Workers at a Honda plant in Zhongshan in

Guangdong province went on strike for higher wages and won a 24% raise. A wave of suicides at Foxconn’s

factory in Shenzhen was about more than low salaries, but triggered a promise from management of higher wages and better working conditions. Key export provinces competed to attract workers, with increases in the minimum wage of 28% or more. Against the background of China’s demographic shift, many analysts believe these are not isolated incidents. They are the signal of the beginning of a new phase in China’s labor markets: the end of surplus labor and the beginning of rising wages.