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China's Shrinking Labor Pool Creating 'Spoilt' Workers

"Mama Mia," the GM of an Italian company lamented to me over lunch in Shanghai, "The corruption I can deal with, but human resource issues are driving me insane. Workers are too short-term focused – 50 percent leave within two months no matter how much money and training we give."

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While rolls of chronically unemployed weigh down America's recovery, another type of job crisis is playing out in China. Employers there can't find enough qualified workers. The biggest obstacle for growth several hundred multinational firms told my firm is not corruption or lack of customers but the inability to recruit and retain qualified talent. Common complaints? “Overly confident”, “spoilt”, “mercenary”, “and disloyal” employees. The majority of Fortune 500 companies reported 30 percent plus annual turnover, with numbers even higher for workers under the age of 28.

The problem is so serious for white and blue collar positions that many companies are relocating operations to markets like Indonesia not just to save costs but to deal with more loyal workforces. Others are recruiting more foreigners. Sure, upfront costs for foreigners might be higher, but when you factor in costs for finding and breaking in new employees, it is often cheaper.

What is causing human resource problems? There is a seismic shift in population demographics for one. Because of the one child rule implemented in 1978, there are fewer young workers. Unlike in Vietnam where 70 percent of the population is under 30 years old, less than 35 percent are in China.

Fewer workers from a shrinking pool are willing to work in factories far from home. Instead, they see the wealth creation around them and want a piece too. While that is good for brands like Apple and Estee Lauder trying to sell to status obsessed younger workers who buy on credit, it is a nightmare for employers.

Foxconn, which produces products for Hewlett-Packard and Dell, recently announced plans to relocate 300,000 positions from southern China to the central part of the country not only to cut costs, but to cater to demands of workers who are no longer willing to work far away from home.

It is healthy so many are not willing to settle with jobs they don’t like, laboring for low wages away from families. One major success of the Chinese government is creating so many opportunities. However, there is a difference with wanting a better way of life and working hard to achieve that, and demanding a better life through entitlement.

This is where the legacies of the one child phenomenon and the horrors of the Cultural Revolution wield their ugly heads. Many parents were so scarred by that horrible time they coddle their children yet push them to succeed. Older generations often were sent to the countryside, forced to marry people they did not love, and never had a chance to make money. They push their kids to achieve and live out their own unrealized dreams.

Yet, the legacies have also created a generation of parents who don’t want to see their children have any misery. Instead of teaching kids how to overcome challenges, they don’t want their kids to face any obstacles in the first place. Many parents want their children to make a lot of money but not work long hours or sacrifice to get ahead.

An entire generation of younger employees constantly leaves jobs when the going gets tough or when they are dangled a minor salary increase. It is not uncommon for younger workers to have 5 jobs in 5 years. The result for the country is far too many over-confident, under-trained and spoilt 20-somethings.

What happens if these young workers never fulfill their increasingly unrealistic ambitions? What happens to China if it never gets properly trained managers in place? These are serious issues China’s society as a whole needs to address.

Over the last several years the government has rightfully increased worker protection. Too many employers were taking advantage of workers. However, rules need to be implemented to protect employers too. Companies should be allowed to charge training fee penalties if employees leave companies within one year after hiring or they should not be on the hook for paying social security and retirement benefits if an employee leaves too soon. If the situation is not fixed, perhaps that Italian GM will join a growing list of companies shifting investment out of China to sunnier investment climates.

Shaun Rein is the founder and managing director of the China Market Research Group (www.cmrconsulting.com.cn) a strategic market intelligence firm, and is based in Shanghai. Follow him on Twitter at @shaunrein.