Labor shortages are materializing across China as young people shun factory jobs and more migrant workers stay home, offering a possible preview of larger challenges ahead as the workforce ages and shrinks.

With global demand for Chinese goods surging this year, factory owners say they are struggling to fill jobs that make everything from handbags to cosmetics.

Some migrant workers are worried about catching Covid-19 in cities or factories, despite China’s low caseload. Other young people are gravitating toward service-industry jobs that pay more or are less demanding.

The trends echo similar labor-market mismatches in the U.S., where some employers are finding it hard to hire enough workers, even though millions of people who lost jobs during the pandemic remain unemployed.

But China’s problems also reflect longer-term demographic shifts—including a shrinking labor pool—that are legacies of the country’s decadeslong one-child policy, which was formally abandoned in 2016.

Shrinking PoolIn 2020, the number of migrant workers inChina dropped for the first time in more than adecade.Number of migrant workers in ChinaSource: Wind
Those trends pose a serious threat to China’s potential long-term growth rate. They will also make it harder for China to keep supplying the world with cheap manufactured goods, potentially adding to global inflationary pressures.

“China has long exhausted its demographic dividend,” said Shuang Ding, an economist at Standard Chartered Bank in Hong Kong.

Yan Zhiqiao, who runs a cosmetics factory in the southern city of Guangzhou with about 50 workers, hasn’t been able to scale up production this year despite rising demand, mainly because the factory has struggled to hire and retain staff, in particular people under 40.

His factory offers the equivalent rate of about $3.90 an hour, which is above market, in addition to free meals and accommodation. But he has attracted few young applicants.

He said the factory can’t afford to boost salaries in large part because of higher raw-material prices this year. The other option would be to increase prices for overseas buyers, if they accept them.

“Unlike our generation, young people’s attitudes towards work have changed. They can fall back on their parents and don’t have much pressure to make ends meet,” said Mr. Yan, 41. “A lot of them didn’t come to the factory to work but to look for boyfriends or girlfriends.”

China’s shortfall in factory labor comes as it grapples with the opposite problem in another part of its economy: too many workers for white-collar professional jobs. More than 9 million students, a record, are graduating from college this year, aggravating the structural mismatch in China’s labor market, economists say.