Two decades ago, Asia’s labor scene was extremely different. Finding young workers to work in factories was simple, involving little effort or obstacles. But over time, the attitudes of new generations of young people in Asia have changed. Asian youth no longer want to work in factories, and Asian companies and factories have trouble recruiting and retaining young workers. This poses a serious threat to the competitive advantage that factories in Asia have long enjoyed—namely cheap and abundant labor.
Factories in Asia are trying to provide young people with a more attractive work environment amid fears of a decline in production, raising alarms for Western companies that rely on cheap labor in the region to produce consumer goods at affordable prices. The reality facing ultra-cheap Asian factory labor is perhaps the latest test of the Asian manufacturing model that has provided a wide range of inexpensive products to consumers around the world over the past three decades.
Asian factories have some key options that could help them overcome the labor shortage crisis. These include increasing wages and adopting sometimes-costly strategies to retain workers, such as improving their quality of life and fulfilling their needs. Another possibility is accelerating the automation process to replace young workers, especially in routine jobs.
The main causes and drivers behind many young Asians’ reluctance to work in factories are:
1. High levels of education: Over the past decade, Asian youth have become more educated than their parents, which opens up wide-ranging employment opportunities other than working in factories. Rather than settle into jobs below their level of education, young Asians are more interested in raising their level of education through graduate studies. As evidence of that, a record number of 4.6 million Chinese students applied for postgraduate studies last year. According to Chinese state media, in November 2022 there were 6,000 applications submitted for every civil service job. This shows young people’s keen eagerness to use education as a ladder for social mobility, given the view they have formed of factory work as inferior.
2. Different lifestyles and culture: For several decades, the competitiveness of the export-oriented manufacturing sector in Asia has been built on state-subsidized investment in production capacity and low labor costs. Maintaining this status quo runs counter to the aspirations of a generation of more well educated Asian young people for a more comfortable life.
Social media has revealed alternative lifestyles and cultures to Asian youth. The rapid economic growth of countries such as China in recent years may have been another factor in changing young people’s lifestyle and culture, raising their aspirations such that they started to view factory work as an increasingly unattractive field.
3. Changing work preferences: Young Asians’ work preferences are different from before. A large segment of Indian youth prefer to work in agriculture, and prefer the agricultural life supported by government welfare programs, to temporary labor in cities and living in factory dormitories in industrial centers. This has prompted factory managers in India to complain of the difficulties of retaining young workers.
On the other hand, Abhyuday Jindal, the managing director of Jindal Stainless—an Indian stainless steel manufacturer—reveals that most young people in the information technology sector are looking for office jobs even when they are assigned to technical jobs.
4. Spillover effect of demographic shifts: Demographic shifts play a major role in many young Asians’ reluctance to work in factories. Young people in Asia have fewer children than their parents, and at a later age, which means they are under less pressure to earn a stable income in their twenties. The flourishing service sector, meanwhile, offers the option of less difficult work, such as working at shopping centers or as hotel receptionists.
Meanwhile, China is experiencing a deep economic crisis. While the country is increasingly aging, youth unemployment is increasing, reaching about 21% in 2023 despite the shortage of factory labor. This has prompted multinational companies to move production from China to other countries—such as Malaysia, Indonesia, Vietnam, and India—despite the obstacles factories in those countries face to persuading young people to work in them.
5. COVID-19’s impacts on manufacturing: The COVID-19 wave that spread through industrial areas in Vietnam has put enormous pressure on the country’s manufacturing sector. Vietnam is one of Asia’s main manufacturing centers, producing goods for some of the largest Western technology and sportswear brands. Reports at the time warned of delivery delays and supply disruptions in everything, including mobile phones, cars, and curtains.
Meanwhile, the pressure on workers—especially those who migrate internally or come from the countryside—continued. As COVID cases rose, severe lockdowns were imposed in industrial zones. People were prevented from leaving home, even to buy food, while hundreds of thousands of workers moved to factories in a pressing arrangement in which workers sleep, work, and eat in their factories. This crisis highlighted the fragility of migrant workers’ lives, and the need for government protection due to their work in low-paying, risky jobs. It prompted may workers to leave factory work, as they did not feel security or stability.
6. High cost of living and low salaries: Asia’s economy has not escaped the consequences of a series of lasting crises in the global economy over the past few years. Inflation pressures and rising costs of living tend to put more pressure on young workers, who receive poor wages. This has prompted many young people to leave work and search for other rewarding jobs, in response to cost-of-living pressures amid economic crises and slowdown in their countries.
Due to the aforementioned factors driving Asian young people away from factory work, the current trend has wide-ranging repercussions:
1. Large labor deficit in Chinese factories: A survey conducted by CIIC Consulting found that more than 80% of Chinese manufacturing companies last year faced labor shortages ranging from hundreds to thousands of workers: 10-30% of their workforce. The Chinese Ministry of Education expects a deficit of nearly 30 million manufacturing workers by 2025, which will have a sharp impact on the sector’s workforce.
2. High unemployment rates: Despite Asian factories’ need for labor, unemployment rates are rising in many Asian countries. Young people are unwilling to work in factories, even if the alternative is to remain unemployed. In China, for example, more than 10% of those aged 16 to 24 are unemployed, despite the country’s clear labor shortages. The continuation of this trend could drive a further rise in unemployment rates in the world’s major Asian manufacturing centers.
3. Increasing price of various products: If Asia’s current manufacturing situation continues, then unless companies and factories can attract young people, consumers around the world will have to prepare themselves for higher prices in all industries: from clothing and electronics, to toys and furniture. A shortage of Asian labor will drive multinational companies towards more extensive automation, imposing higher consumer costs by raising the price of various goods.
4. Manufacturers’ frustration with labor shortages and declining production: The shortage of Asian workers in their twenties and thirties contributes to the frustration of manufacturers in Asia. This labor shortage could drive a decline in production, and manufacturers may stop working and have to shut down if they cannot take on the costs of full automation. This, in turn, causes the world to lose crucial manufacturing centers that provide cheap products.
5. Curbing demand in key export markets: The situation may get worse, in light of rising inflation and borrowing costs. On one hand, that could curb demand in key export markets for Asian manufacturing centers. On the other, foreign direct investment could leave those countries. The world would lose Asian manufacturing centers that provide goods to all countries of the world at affordable prices.
Factories and companies in Asia currently have three main options to address the mismatch in the labor market and shortage of young workers:
1. Sacrifice profit margins for higher wages: Asian companies and factories can turn to increasing wages and improving the work environment, by sacrificing profit margins, as a way to attract young workers in Asia. A number of Asian countries are taking this path. In Vietnam, for example, factory wages have more than doubled since 2011 to $320 per month—three times the rate of increase in the United States, according to data from the United Nations’ International Labor Organization. In China, too, factory wages increased by 122% from 2012 to 2021.
Pushing for further salary increases could help attract many young people, and retain those who are already working. On the other hand, Asian factory owners are trying to make jobs more attractive by supporting childcare and funding technical training programs. Some are moving factories to rural areas, where people are more willing to do manual labor, but this leaves them far from ports and suppliers. It also forces them to accommodate rural life, including the absence of workers during harvests.
2. Expand investment in automation: Asian manufacturing centers are moving towards greater automation to replace labor in routine jobs. This remains a bright light for policymakers in the region. Chinese policymakers emphasize automation and industrial modernization as a solution to the dilemma of an aging workforce. The coming period could carry with it a significant expansion of investments to achieve full automation in factories. Still, this option remains very expensive, and there are many financial obstacles to its realization.
3. Foreign investment flight from main manufacturing centers: More foreign factories and companies could resort to turning from some major Asian manufacturing centers—such as China, in light of labor shortages—to seek others that have less trouble retaining young workers, and where production is cheaper, such as Vietnam or India. This could lead China to lose its position as one of Asia’s most important manufacturing centers.
Overall, the heads of Asian factories are aware that, in order to replace the aging workforce with new blood, they need to offer higher wages and better working conditions. They perceive as undermining their competitive advantage: cheap labor. Smaller manufacturers believe that large investments in automation technology are either too costly or unwise, and impose major financing obstacles. But the crisis, if not addressed, poses a serious threat to Asia’s position as a global manufacturing center with great competitive advantages. As a result, Asian factories are forced to make concessions to make the factory work environment more attractive to young people. Analysts tend to say that market forces may force young people and manufacturers alike to limit their aspirations, meet on a middle ground that satisfies both parties.