Asia's era of dirt-cheap labor is coming to an end

The age of incredibly inexpensive Asian labor is ending due to an aging population and a younger generation less willing to work in factories.

The office offers free yoga and dancing lessons, coffee with matcha, and floor-to-ceiling windows. Workers gather at "team-building" sessions monthly to drink beer, drive go-karts and play bowling. That is not a Google Office description but rather a Vietnamese clothing factory.

Asia, the world's factory, is witnessing a new trend: young people generally don't want to work in factories. Businesses in the manufacturing industry are attempting to improve the workplace atmosphere. This is also relevant to Western businesses that use the region's cheap labor to produce affordable consumer goods.

As a test of the worldwide manufacturing model that has given the globe access to affordable commodities for the past three decades, the "sunset" of cheap labor in Asia is waning. According to the WSJ, Americans accustomed to fashion and affordable flat-screen T.V.s may soon have to factor in higher prices.
According to Paul Norriss, co-founder of UnAvailable Garment in Ho Chi Minh City, you need help to provide you with what you want. "People will have to change their consumption habits, and so will brands," he said.

Workers at the UnAvailable factory in Ho Chi Minh City. Photo: WSJ

Norriss said workers in their 20s - the traditional garment industry workforce - often work for a few years and then leave. He hopes improving the working environment can save the situation. "Everybody wants to be an Instagrammer, a photographer, a stylist, or work at a coffee shop," he says.

In response to the workforce crisis, Asian factories have had to raise wages and sometimes adopt costly strategies to retain workers, from improving meal quality to building model education for workers' children.

Also read: Labor market bounces back

Toy maker Hasbro says labor shortages in Vietnam and China have increased costs. Barbie maker Mattel, which has a large production base in Asia, is also grappling with higher labor costs. Both companies raised prices for the product. Nike, which manufactures most of its shoes in Asia, claims that rising labor costs are to blame for rising product costs.

Manoj Pradhan, economist in London, warns U.S. consumers accustomed to relatively stable commodity prices relative to their disposable income will have to think again. "There is a big reversal in demographics," the expert said.

China and later other Asian manufacturing centers integrated into the world economy starting in the 1990s. Countries having a reputation for being poor farmers become powerful economic forces. Durable goods like sofas and refrigerators get cheaper.

But now those countries face a generational problem. Younger workers determine that life and work should not occur inside factory walls due to their increased education and familiarity with Instagram and TikTok.

Another demographic change also plays an important role. In Asia, young people are having fewer kids later in life. As a result, they are less under pressure to earn a reliable income in their 20s. The booming service sector offers less grueling job options like store clerks in malls and reception at the hotel.

The problem is acute in China, where urban youth unemployment hit 21% in June despite factory shortages. Multinational companies have been shifting production from China to countries such as Malaysia, Indonesia, Vietnam and India. There, though, industrial owners claim that it is similarly challenging to draw in young workers.

Yoga class for UnAvailable workers in Ho Chi Minh City. Photo: WSJ

The earnings of factory workers in Vietnam have increased since 2011 by more than double to $320 per month, three times the average in the United States, according to data from the International Labor Organization of the U.N. From 2012 to 2021, industrial wages in China increased by 122%.

Earlier this year, 25-year-old Nguyen Anh Tuan, a high school graduate, quit his job as a mechanic at an auto parts manufacturer on the outskirts of Hanoi to run Grab. He feels the adjustment was worthwhile because he is his boss, even if he makes less money per hour driving passengers than at the plant.

"The supervisors are often harsh on words, which makes me very nervous," Tuan said of his three years at the factory. He said he would only consider returning to the factory if his old salary of $400 per month was doubled.

For cheap labor, manufacturers moved to less expensive locations in the past. But now, that is not easy. Some countries in Africa and South Asia have a large workforce but are politically unstable or lack good infrastructure and a trained workforce.
For instance, textile companies have fought to enter Ethiopia and Myanmar only to have political unrest impede their business operations. Bangladesh was previously a dependable location for textile production, but restrictive trade laws and crowded ports diminished its desirability.
There are many people in India, and businesses are trying to replace China. But even in India, factory managers began complaining about the difficulty of retaining young workers. Many young people prefer a farm life supported by state welfare programs or choose freelance work in the city over living in factory dormitories. Trained engineers leave the factory to join the information technology industry.

Asian industrial owners support kindergartens and technical training programs to make work more appealing. Some are moving factories to rural areas, where people are more willing to do manual labor. But that distances them from ports and suppliers and forces them to adapt to rural life, including absenteeism during harvest.

Also read: Hanoi in need of 100,000 workers in first quarter 2022

Acacia Woodcraft Vietnam's Taiwanese owner Christina Chen relocated the factory four years ago to facilitate employee hiring. She initially considered industrial zones near Ho Chi Minh City but heard warnings about job hopping rates and soaring wages.

She consequently made the rural North of Vietnam her destination. Her employees are often in their 40s and 50s, and some struggle with reading. This requires explaining tasks verbally and using visual illustrations. In return, her workforce is more stable.

Christina Chen cherishes young employees. She invites them to participate in decision-making, meets with visiting American shoppers, and shares photos of the company's furniture in its U.S. stores. She thinks that while automation plays a role, many tasks still require human ingenuity.

Workers at Acacia Woodcraft Vietnam. Photo provided by the company

The labor landscape in Asia is much different than two decades ago. In 2001, Nike reported that more than 80% of its workers were Asian, typically 22 years old, single, and raised in a farming family. The average age of Nike employees is 40 in China and 31 in Vietnam, partly due to the rising aging of Asian nations.

Maxport Limited Vietnam, a Nike supplier established in 1995, is witnessing increasingly fierce competition for workers. Now, they must work to improve the working environment, with factory windows flooded with sunlight and thousands of trees around. Young workers are trained to advance.

However, they still struggle to attract young people. Do Thi Thuy Huong, a senior compliance officer, claimed that a lack of employment acceptances contributed to the termination of the training program for high school graduates. The average age of Maxport's employees is 30 or above.

In Malaysia, factories are dropping the requirement to wear uniforms, which young workers hate, and redesigning workspaces. Manufacturers' representative Syed Hussain Syed Husman said the company is attempting to make the factory more attractive by enlarging partitions and adopting more glass structures, providing natural light and music, and creating an environment akin to an Apple office.

Susi Susanti, 29 years old from Indonesia, tried working at the factory after graduating high school. She detests, though, being under management's time constraints. She told her mother that something had to be done.

After a six-month training course, she spoke basic Mandarin and began caring for an elderly couple in Taiwan. Her salary was three times higher than when she worked in the factories back home, making her less tired. Susi continues, "When the person I'm caring for gets well, I can unwind."