China will face a continuous acceleration of market wages in the next five years, a report by the School of Economics, Renmin University of China, said.

The change will be the result of the low-end labor market reaching a turning point, bringing about structural changes that have initiated the recent general wage formation mechanism reform.

In 2010, labor supply-and-demand ratios in the eastern, central and western regions all hit record highs.

"Migrant workers' wages have generally been rising, burgeoned by a situation in which labor demand has surpassed supply," the report said. It also said this round of wage hikes would mark the shift of the wage formation rule from upholding the minimum living standard of low-end workers to market bargaining.

The report predicted the wage formation mechanism reform that originated from low-end labor market will spread to the high-end market and trigger shifts in income distribution.

The School of Economics Dean Yang Ruilong said, "Judgments and forecasts of industrial labor supply conditions will have impacts on agriculture, employment, technological innovation and a series of policy orientations."

"It matters deeply to the industrialization process and the next stage of overall economic development," he said.

The report showed that since the labor shortage emerged in 2004, migrant workers' wages have moved away from long-term stagnation to rise rapidly. They have more than doubled in six years, with an average annual increase rate of more than 12.4 percent.

The shift of the labor supply from surplus to deficiency is the root of wage increases, it said. China's current agricultural labor force still stands at up to 3 million, with 40 percent employment. Many surplus labors stayed in the agriculture sector.

Economists expected a growth of income from agriculture and a consequential increase in low-end workers' wages.

This, combined with China's accelerating industrialization, will increase the demand for, and price of, labor.

"The rise and its impact on higher levels of the labor market will undermine wages' lag behind national income, causing a revolutionary change in the national income distribution," said Yang Jidong, one of the report's authors.

The public has raised doubts that growing wage pressures will increase business costs, compress corporate profits, affect investment and increase inflationary pressure on China's macroeconomic stability.

But head of the Research Institute of Donghai Securities Zhu Rong said rising wages will create more opportunities than challenges.

Although rising wages add cost pressures, the continuous increase of China's labor productivity will keep unit labor costs in decline and, consequently, not translate into inflationary pressures in the near future, the report said. As for exports, the wage increases' influences on non-processing trade production will be greater than those on the processing trade business.

"This round of wage increases' impact on China's export industry is not big, let alone fatal," said Yang Ruilong, adding that wage increases will not fundamentally change China's status as a manufacturing power.

(China Daily October 8, 2010)