ABSTRACT
The Chinese labour market has witnessed a great transition in recent years, as evidenced by frequent labour shortages and rising wages for unskilled workers (Cai Fang 2007). In 2011, average monthly earnings for migrant workers grew 15 per cent in real terms compared with previous years (NBS 2012). These changes have benefited workers but present new challenges for producers as labour costs rise. The particularly rapid rise in labour costs in manufacturing is evident in the rapid growth in unit labour costs, i.e. the ratio between labour cost and average labour productivity. The difference in unit labour costs between China and developed countries is still substantial but the gap is closing. Since 2004, US unit labour costs in manufacturing have averaged 0.6 while in China they have risen from 0.19 to 0.22. 2
