Internal Migration and Cheap Labor in China

1. Internal Migration and Cheap Labor in China

2. The Etch-A-Sketch • The Etch-A-Sketch toy was first designed and manufactured in 1960 in Bryan, Ohio by the Ohio Art Company. • In 2000 the Ohio Art Company closed its toy manufacturing facilities in Ohio and began manufacturing the Etch-A-Sketch in Shenzhen, China. • Shenzhen is a Special Economic Zone, which forms part of a growth triangle that includes Hong Kong.

3. Labor differences • Prior to closing their plant in Ohio, the Ohio Art Company was paying its unionized employees $9 plus benefits and time and a half for overtime over 40 hours a week. • In China, the Etch-A-Sketch is produced by employees earning around $.24 an hour, without benefits or significant overtime pay, though employees often work around 84 hours a week.

4. China’s labor standards • China has similar labor standards as the United States. • The legal minimum wage is $.33 • The work week is 40 hours, with requirements that any work over 40 hours be compensated at a rate of 1.5 x the base salary. • Non-salary benefits are required for all full- time employees.

5. The difference cheap wages make • In 1960 the Etch-A-Sketch was sold for around $8 • In 2003 the cost of an Etch-A-Sketch in Wal-Mart was just over $9.50 • Adjusted for inflation, the Etch-A-Sketch costs less today than in 1960. • The decision to move Etch-A-Sketch manufacturing to China was driven by retailers’ (Walmart and Toys-R-US) demand for lower cost goods. • Why are labor costs in China so cheap?

6. Why is there such a significant difference between the legal and actual labor standards in China? • Under the Post-Maoist economic reforms, initiated in 1978, the Chinese government instituted an internal passport system know as the Hukou system. • Under the Hukou system, citizenship rights are tied place of residence and occupation. • Thus, rural people in western China only have citizenship rights, such as state benefits and legal recourse, in their home villages.

7. Rural poverty and displacement • Due to rising levels of rural poverty and significant amounts of displacement (like dam building) an estimated 114 million rural people have migrated to manufacturing centers (SEZ) on the coast. • Because of the Hukou system, rural migrants have no legal standing in the urban manufacturing centers. They are essentially illegal immigrants.

8. Undocumented Labor and Power • As with illegal immigrants in the US, the power to deny laborers citizenship rights creates a pool of highly complacent labor. • Fear of being reported for illegal migration prevents laborers from taking legal action against companies that break China’s labor laws. • The Chinese government is well aware of the amount of illegal migration in the country. However, much of China’s economic success depends on its ability to manufacture goods at extremely cheap prices.

9. Conclusion • The Hukou system serves to legitimize and legally sanction power differentials and ethnic differences between poor rural Chinese populations and more affluent urban Chinese. • The Hukou system prevents any significant upward mobility for rural populations. • China’s ability to out-compete most regions of the world in terms of low labor costs depends in part on a system of exclusion and territorially based citizenship.