Once again local government picks up the wage tab for failed business

The news today that the Shenzhen government has started paying out the wages owed by failed courier service DDS should not come as a surprise to anyone. Ever since DDS abruptly closed down last week, owing thousands of workers millions of yuan in unpaid wages, employees and company clients across the Pearl River Delta have been on the streets, staging demonstrations and demanding redress.

The sight of thousands of angry workers surrounding the offices of DDS and local government labour departments in Shenzhen, Dongguan, Guangzhou and Foshan prompted a swift response from the Shenzhen government in particular. Workers in Bao’an district received two months wages in arrears yesterday, and employees based the city’s other districts are scheduled to be paid today.

Officials in Guangzhou, where DDS wage arrears reportedly exceed eight million yuan, Dongguan and Foshan, have yet to reveal their plans but with the Lunar New Year looming, they will be under immense pressure to pay the workers at least something before they head back to their families for the holidays.

The boss of DDS has been detained and the company’s assets frozen, however no one knows for sure if sufficient capital can been raised from these assets to pay all the wage arrears and company debts. In the short term, it is the local government that will have to appease the workers by picking up the tab.

This of course is not the first time a local government in the Pearl River Delta has had to settle huge wage bills left by bankrupted companies and runaway bosses, indeed it is becoming almost standard practice. At the height of the global economic crisis in 2008, in Dongguan alone, 117 bosses skipped town in just two months, leaving about 20,000 workers without pay. And in nearly all cases, the Dongguan government was left with the bill. However, it is important to note here that local governments rarely pay the workers all they are legally entitled to. Workers usual only get about one half to two thirds of their wages, or just about enough to make them go away.

Local governments have to spend vast amounts of time and money clearing up the mess left behind by bankrupted and crooked companies. If, on the other hand, governments spent a little bit more time and money on enforcing the country’s labour laws and ensuring that workers actually got paid on time, they would not have to worry so much about disgruntled employees taking to the streets disrupting harmony.

Moreover, as a number of government officials and trade unionists in Shenzhen and other cities in the delta are now realizing, if there is an mechanism within enterprises that can facilitate collective bargaining between labour and management, many wage disputes could be solved internally without the need for government intervention at all.

All collective bargaining experiments were basically put on hold during the economic crisis, but now there appears to be a push (sanctioned in the official media) to resume the collective bargaining initiative. Already, several cities have announced their intention to raise the minimum wage (also frozen in the wake of the economic crisis) this year. Nanjing, for example, will increase the minimum wage by 12 percent next month to 960 yuan a month, and Beijing will reportedly increase its minimum wage by around 10 percent in April.

Hopefully, this year, local governments really will pay greater heed to workers’ voices and make sure that, at the very least, their basic legal rights are protected and that they have the tools they need to safeguard their own economic interests.
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