Labour intensive enterprises will need to prepare for higher employment costs as the Shenzhen Municipal Government increased the city’s minimum wage this month.

“The absolute amount of the minimum wage increase this time is the biggest increase since the minimum wage system was established in Shenzhen in 1992, and we think the enterprise labour costs shall increase accordingly,” said Yi Zhou, partner at RayYin & Partners.

According to Shenzhen’s labour and social security bureau, the minimum wage inside the zone will be lifted by Rmb150 to Rmb1,000 per month, and wages outside of the zone will increase by 20% to Rmb900. The new pay level will be higher than Shanghai’s Rmb960 and Guangzhou’s Rmb860.

“Labour intensive enterprises may [need to] consider how to cut the raw material costs, how to raise their product price, and whether to undertake technological updates,” Zhou.

Some enterprises have already increased their product prices to compensate the rise of labour costs, he said.

Shenzhen was excluded from the wage increases when the Guangdong provincial government issued the Notice of Adjustment of Minimum Wage for Enterprises Workers in Our Province on February 3 this year.

But Zhou said labour shortages will still be a problem in Shenzhen. “Statistics shows that the average income of migrant workers in China had reached Rmb946 in 2006. We don’t think this increase will have great attraction to workers,” he said.

And since Shenzhen’s comparatively high living cost will reduce employees’ practicable disposal income, labour shortage will still be an issue.