Labor costs will rise

Videos
Photos

(China Daily)
Updated: 2008-09-22 07:40

The implementation regulation for the Labor Contract Law issued last week by the State Council marks a much-needed effort to strike a balance between the protection of workers and labor market flexibility.

By issuing the regulation, the authorities made it clear that labor contracts with no fixed termination dates do not amount to unbreakable "iron rice bowls" that may severely hurt enterprises' vitality.

Chinese employers may now be breathing a sigh of relief, but they should by no means slow their preparations for rising labor costs.

The new Labor Contract Law, which came into effect on Jan 1, was hailed as a landmark step in protecting employees' rights. Among a number of stipulations to emphasize workers' welfare, one clause entitles employees of at least 10 years' standing to sign contracts without specific time limits, thus protecting them from dismissal without cause.

Given the widening income gap, such a legislative effort to enhance the protection of workers was long overdue.

Facts show that the law has indeed been effective in boosting ordinary workers' welfare. Statistics indicated that as of June, the percentage of employees by region that had signed labor contracts was between 90 and 96 percent, up 3 to 8 percentage points from the end of last year. And the amount of collected social security funds - pensions, unemployment, medical, work injury and maternity insurance - also jumped 31 percent year-on-year in the first half of 2008.

Undoubtedly, this increase in workers' welfare will add to the mounting cost pressures on Chinese enterprises already caught between soaring commodity prices and weakening overseas demand. The case is even more serious for labor-intensive enterprises.

Domestic enterprises' complaints that the new law inflated operational costs have obviously got policymakers' ear. The central government issued a draft of the implementation regulation in May to solicit public opinion.

The State Council has now issued an implementation regulation for the Labor Contract Law, including 14 conditions under which an employer can terminate an open-ended labor contract. These conditions include employees' incompetence, serious violations of regulations and dereliction of duty, as well as a company's restructuring or severe operational difficulties.

Such a regulation should clarify the misunderstandings and make the law more effective.

Businesses no longer need to worry too much about that the "no-fixed-term contract" stipulation will reduce flexibility in the domestic labor market and undermine their competitive advantages. Nevertheless, a gradual but steady rise in labor costs remains inevitable, if not imminent, in China. Both the country's demographic change and the government's determination to raise workers' lot will make it wise for domestic enterprises to adapt themselves to higher labor cost as soon as possible.

(China Daily 09/22/2008 page4)