Overtime: how much is too much?
08 September 2008
The various effects of the ‘global economy’ are not always immediately apparent. In the electronics industry for instance, we are familiar with the horror stories about collateral damage caused by the dictates of the market: a cycle of job losses and industry collapses in one country leading to opportunity and prosperity in another. Many factors are at play on the micro and macro level, and occasionally the outcomes are very surprising.
For example, China’s electronics industry is facing a labour shortage and rapidly rising labour costs. It’s hard to imagine how this could be possible in a developing country of 1.3 billion people, and to many people it’s a situation that was certainly hard to foresee just a few short years ago.
China’s inland western provinces that were traditionally sources of migrant workers are fast developing their own industrial bases and there is less need for workers to travel east, where most electronics factories are located, in search of work.
At the beginning of the year, China introduced sweeping workplace reforms. New employment contract laws were introduced, including double normal rates to be paid for overtime for work performed beyond a 48-hour week. Workers cannot work more than 36 hours of overtime in a month. Triple-time must be paid for work performed during holiday periods, and there’s a requirement for unions to be formed.
The good intentions of the central government are clear and should be commended, as is its commitment to Corporate Social Responsibility. CSR has been reported to enjoy wider support amongst executives of local and multinational companies based in China, than amongst their global counterparts. However, the gap between intention and reality is often difficult to bridge, especially in China. Although the government has introduced these new rules, they do not always get vigorously enforced at the local level.
Whilst labour reforms appear to be good news for China’s workers, and bring them more in line with global working conditions, it has now placed the country in a less competitive position in respect of what was one of its key selling points - low labour costs.
The rapid increase of energy and commodity prices has affected China, with inflation on the rise, despite the central government’s attempts to control it. Higher prices for everyday items, including food, are driving the need for Chinese workers to receive higher wages. Many Chinese workers require as much overtime as they can get.
A recent comprehensive report, ‘Corporate Social Responsibility in China's Information and Communications Technology (ICT) Sector’, put together by a study group from the Foreign Investment Advisory Service of the World Bank and Business for Social Responsibility, found that many operators in Shenzhen felt that workers demanded at least 60-80 hours of overtime per month, and that overtime only became unwelcome above 100 hours per month.
This poses a difficult question for electronics manufacturers in China. Do they risk breaking the new law by offering in excess of 36 hours overtime per month, or comply with the new laws and risk losing workers to employers who don't play by the rules?
The Shenzhen factory managers interviewed in the CSR report said that staff turnover rate can be as high as 20%. They were concerned about losing workers to rival companies that were illegally offering more overtime.
The report made a number of recommendations to resolve the issue. It suggests that the new law may in fact be too restrictive and that the government, workers and employers should work together to negotiate a level of overtime acceptable to all stakeholders. Once the new level is agreed upon, companies that break the law should be heavily fined and those which obey it should be offered rewards as incentives.
Subsequently, in what could be argued as a bit of a domino effect, opportunities have arisen for machinery manufacturers, many of which are based in countries that had previously lost jobs to low cost Chinese manufacturing. China’s labour shortage has forced manufacturers to seriously consider increased automation of production processes, helping China to improve quality and move up the supply chain.
Love it or loathe it, the global economy will apparently always bring about changes that will continue to surprise and affect us all.
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