China's Balancing Act

China's work force is stifled for several reasons. The first concern is the country's one child only policy which has caused a shortage in young Chinese workers entering the work force. The government has also initiated tax cuts and other incentives to motivate people to work on farms rather then factories. China's biggest concern, however, is their success. China's economy is very strong and still growing; this has, of course, caused the people's salaries to rise. College is a better option for them then a factory job.

Economically speaking China cannot meet its derived demand, which is the demand for labor based on consumer demand for the final product. Normally a company would hire additional workers until their MRP, or Marginal Revenue Product, equals the wage rate. China simply cannot do this because they are quickly running out of a labor force available for these positions. The country's supply and demand of labor has fallen out of balance.

Usually this would be viewed as a positive event but in truth China's human capital is too high. Human capital is the level of education, training and health a worker has to enter a particular workforce. China runs the risk of having no non-skilled workers available to enter the workforce. This would cause other countries to look elsewhere for non-skilled labor and cut China's profits.

China is a real world example of how important it is that balance be maintained in the workforce. Factory work may not be exciting but China was built on it. Their people are much better off today then ten years ago. However, if this balance is not regained the country will need to seek other venues to sustain itself.

References
Barboza, David (2006). Labor shortage in china may lead to trade shift. Retrieved March 29, 2007, from www.swlearning.com Web site: http://www.swlearning.com/economics/econ_news/labor_markets_0606_001.html
Tucker, Irvin B. (2008). Microeconomics for today, fifth edition. United States of America: Thomson South-Western.