The Impact Of Rising Labor Cost On Labor-intensive Manufacturing Industry In The Yangtze River Delta Area

In recent years, the labor scarcity and the rising labor cost seem inevitable, it posed challenges for manufacturing industry characterized by labor-intensive in China. In the past, almost all labor-intensive manufacturing industry thrive on cheap labor to participate in competition. In face of the current economic environment, a fundamental rethinking of whether the comparative advantage of labor-intensive manufacturing industry can continue and what kinds of development problems will labor-intensive manufacturing industry have to confront is necessary. This paper selected three indicators to analyze the impact of rising labor cost on labor-intensive manufacturing industry with panel data regression: cost, profit and export.First, this study select 8 labor-intensive manufacturing industries as subjects by the amount of labor unit output value and the fixed assets-net value unit workforce, and then analyze the current state and challenge of labor-intensive manufacturing industry in the Yangtze River Delta area. The analyses conclude that the manufacturing industries should face the instability of global economic conditions and the intensive competition, the inflationary pressure and the constraints of system also force manufacturing industry to transform. After that, there is a quantitative analysis of the rising labor cost in the Yangtze River Delta area,with the opinion that the rising labor cost is driven largely by the increasing living cost, the changing supply and demand of labor and the adjustment of labor laws. Then the study discusses the influences of the shortage of rural migrant workers and the Lewis turning point, with the conclusion that the arrival of Lewis turning point will bring the increase of labor cost and force manufacturing industry to upgrade. At last, this study use the panel data of 8 labor-intensive manufacturing industries from 2005 to 2014 to analyze the impact of rising labor cost on labor-intensive manufacturing industries in the Yangtze River Delta area by three model. The first model analyze the impact of rising labor cost on cost of main business by choosing indicators of labor cost, quantity of employment and industrial output. And the second model analyzes the impact of rising labor cost on total profit by select indicators: labor cost, total assets and industrial output. And the last one focus on the impact of rising labor cost on value of export with three indicators: labor cost, exchange rate and index of export price. The result show that, the rising labor costs does not have a significant influence on cost of main operation, but it will cut profit and value of export to some extent. As can be seen, labor-cost is not the primary factor of cost of main operation, the labor-intensive manufacturing enterprise should turn their outdate way of monitoring cost to profit-focused business model. But labor-intensive manufacturing industries should make a transition in consideration of the decline of profit and value of export. The technical sophistication and added value of labor-intensive products should be increased, so that the labor-intensive manufacturing industries’ profitability will be enhanced, and the international competitiveness will be strengthened.The empirical results show that it is practical to assess the impact of rising labor costs on labor-intensive manufacturing industries, which can offer reference for labor-intensive manufacturing industries to transform and upgrade.