A look inside China's steel industry. (Photo : Getty Images)
China's problem in the dropping workforce may be hiding another labor dilemma that the country is grappling with today: underemployment.
According to a report from Bloomberg, China is starting to see cracks in its employment statistics as the underemployment rate jumped from 2010's zero to over 5 percent this year.
This is amid speculations that many manufacturing businesses the country is going automated to cope with the estimated 211 million drop of the working age population by 2050 as reported in the South China Morning Post.
Automation and Other Labor Problems
While it may solve the problem on decreased production in the manufacturing sector, many refer to automation in factories as a major problem for China's workforce.
As previously reported, automation provides companies with much less labor cost as it can work without needing to rest and
But aside from robots, overcapacity and the presence of zombie companies has become a major dilemma for the Chinese workforce by means of underemployment.
Underemployment
Talking to Bloomberg, Xiamen University economics professor Bai Peiwei revealed that the underemployment in China may be partly due industries with overcapacity amid the Chinese government's attempt to highlight a stable employment rate in the country.
Because of the overcapacity particularly in steel mills and coal mines, these companies required employees to go on unpaid leave and reduced the time of shifts if only to prevent mass layoffs while keeping the businesses afloat.
Though this helps make the bird's eye view of the situation look pretty, a closer look would show that it is not a better a situation for the shrinking labor population and in turn, the country's economy.
"Underemployment in overcapacity industries is a drag on the potential improvement of productivity in China, which will lead to a softening wage trend. It would exert pressure on private consumption demand and, in turn, affect the overall rebalancing of the economy," JPMorgan Chase & Co. senior China economist Grace Ng explained.
According to Renmin University labor and human resources professor Zeng Xiangquan, the underemployment situation is particularly rampant in state-owned or controlled firms which he says is being "overprotected" by the government.
Meanwhile, "zombie" firms which are supposedly the target of the government's crackdown to fight overcapacity has proven to be a more difficult adversary for the economy.
As London-based Fathom economist Laura Eaton explained, there is no quick fix to it but the Chinese government appears to be taking the shortcut.
"In the short term, to reduce the problem of underemployment in China, the government should allow those 'zombie companies' with low productivity growth and excess capacity to default or shut down," she explained to Bloomberg.
