Another element is the changed balance of demand and supply on the labor market.
The central government has taken numerous measures to boost the development of rural areas, like repealing the agricultural taxes, increasing public investment in rural education and offering a variety of subsidies and other favorable policies to farmers. The living standards of farmers have been raised significantly since the late 1990s. Therefore, the rural residents feel a lesser urgency to find jobs in cities.
The other side of the coin is that China witnessed strong growth in the export of labor-intensive industries since it became a member of the World Trade Organization in 2001. And the export growth was further accelerated after 2004, which added more pressure to the labor market.
Of course, the changed balance in the demand and supply of labor only bears a short-term influence. A more profound reason for the temporary and regional labor shortage, as well as for the low urbanization level of the country is an institutional illness - the segmentation between rural and urban areas on the labor market.
Such segmentation could be observed in the inferior payment and welfare of the migrant workers in cities than the urban residents. They are not covered under the same social security program with urban employees and their children could not gain an equal access to education with the urban kids.
If such discrimination is not eliminated, the migrant workers would, sooner or later, go back to their rural homes. And the labor supply in cities is unlikely to be abundant.
Instead of a labor shortage, we should worry about the long-term segmentation between cities and countryside, the obstacles against labor flow posed by this segmentation and the segmentation between urban groups with and without local identities.
The segmentation threatens urbanization growth, which is a source for China's sustainable development.
Worse, the income gap, stemming from the segmentation, plays a significant role in threatening the investment growth as well as economic growth as a whole. And it also threatens social stability.
It is more important to consolidate the labor market by lifting the barriers between cities and the countryside and narrowing the income gap by encouraging a free flow of laborers than being concerned about the labor shortage, which may take quite some time to come.
(China Daily June 12, 2008)