TROY – A labor shortage has pay soaring in China, which is sure to send ripples around the globe.

For years, Yongjin Group has earned a decent profit selling lamps and furniture to the likes of Wal-Mart, Home Depot, Target, and Pottery Barn. But lately the company has seen its margins shrink to 5 percent – half what Yongjin made when it opened its factory in the steamy southern Chinese city of Dongguan 14 years ago. Why? Labor shortages are forcing the company to boost wages. Last year salaries surged 40 percent, to an average of $160 a month, and Yongjin still can’t find enough workers. “This business needs a lot of labor,” says President Sam Lin. “This is a very tough challenge.”

Some 1,500 miles northeast, in the city of Suzhou, Emerson Climate Technologies Co. is facing similar woes. The maker of air conditioner compressors has seen turnover for some jobs hit 20 percent annually, and Emerson General Manager David Warth says it’s all he can do to keep his 800 employees from jumping ship to Samsung, Siemens, Nokia, and other multinationals that are now operating in the tech manufacturing hub. “It has gotten to the point that we are just swapping folks and raising salaries,” says Warth.

Wait a minute. Doesn’t China have an inexhaustible supply of cheap labor? Not any longer. From the textile and toy factories of the south to the corporate headquarters and research labs in Beijing and Shanghai, the No. 1 challenge today is finding and keeping good workers. Turnover in some low-tech industries approaches 50 percent, according to the Institute of Contemporary Observation, a Shenzhen labor research group. Guangdong Province says it has 2.5 million jobs that remain unfilled, while Jiangsu, Zhejiang, and Shandong provinces say they, too, face shortages of qualified workers. “Before, people talked about China’s unlimited labor supply,” says Zhang Juwei, deputy director of the Institute of Population & Labor Economics at the Chinese Academy of Social Sciences in Beijing. “We should revise that: China is facing a limited supply of labor.”

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