Saturday, August 12, 2023

"The Era of Ultracheap Stuff Is Under Threat"

From the "places where futureflation will come from" file.

Okay, it's actually from the Wall Street Journal, August 7: 

Factories across Asia are struggling to attract young workers, which is bad news for Western consumers accustomed to inexpensive goods

The workplace features floor-to-ceiling windows and a cafe serving matcha tea, as well as free yoga and dance classes. Every month, workers gather at team-building sessions to drink beer, drive go-karts and go bowling.

This isn’t Google. It’s a garment factory in Vietnam. 

Asia, the world’s factory floor and the source of much of the stuff Americans buy, is running into a big problem: Its young people, by and large, don’t want to work in factories. 

That’s why the garment factory is trying to make its manufacturing floor more enticing, and why alarm bells are ringing at Western companies that rely on the region’s inexpensive labor to churn out affordable consumer goods. 

The twilight of ultracheap Asian factory labor is emerging as the latest test of the globalized manufacturing model, which over the past three decades has delivered a vast array of inexpensively produced goods to consumers around the world. Americans accustomed to bargain-rate fashion and flat-screen TVs might soon be reckoning with higher prices.

“There’s nowhere left on the planet that’s going to be able to give you what you want,” said Paul Norriss, the British co-founder of the Vietnam garment factory, UnAvailable, based in Ho Chi Minh City. “People are going to have to change their consumer habits, and so are brands.”

Workers in their 20s—the garment industry’s traditional labor force—routinely drop out of his company’s training program, Norriss said. Those who stay often work for just a couple of years. Norriss hopes that dialing up the workplace cool quotient might make a difference.

“Everybody wants to be an Instagrammer or a photographer or a stylist or work at a coffee shop,” he said.

In response to the crisis, Asian factories have had to increase wages and adopt sometimes costly strategies to retain workers, from improving cafeteria fare to building kindergartens for workers’ children. 

Toy and game maker Hasbro said this year that labor shortages in Vietnam and China had pushed up costs. Barbie-maker Mattel,

which has a large production base in Asia, also is grappling with higher labor costs. Both companies have raised prices for their products. Nike, which makes most of its shoes in Asia, flagged in June that its product costs had gone up because of higher labor expenses. 

“For U.S. consumers that have been used to having goods at a certain and relatively stable part of their disposable income, I think that foundation is going to have to be rejiggered,” said Manoj Pradhan, a London-based economist and co-author of “The Great Demographic Reversal.”

Starting in the 1990s, China and then other Asian manufacturing hubs integrated into the global economy, turning nations of poor farmers into manufacturing powerhouses. Durable goods such as refrigerators and sofas became less expensive. 

Now those manufacturing nations are running up against a generational problem. Younger workers, better-educated than their parents and veterans of Instagram, TikTok and other social media, are deciding their work lives shouldn’t unfold inside factory walls.

Demographic shifts are playing a role. Young people in Asia are having fewer children than their parents did, and at later ages, which means they are under less pressure to earn a steady income in their 20s. A booming services sector offers the option of less-grueling work as store clerks in malls and receptionists at hotels.

The problem is acute in China, where urban youth unemployment hit 21% in June even though factories had labor shortages. Multinational companies have been moving production from China to nations including Malaysia, Indonesia, Vietnam and India. Factory owners there said they, too, are struggling to get young people to sign up.

Factory wages in Vietnam have more than doubled since 2011, to $320 a month—three times the rate of increase in the U.S., according to data from the United Nations International Labor Organization. In China, factory wages rose 122% from 2012 to 2021, the latest period for which the U.N. data is available....