I\’ve said this before

China\’s manufacturing wages have vaulted from around $1,000 annually 10 years ago, to $3,900 last year. Pay in the industrial hubs of the Pearl River and Yangtze River deltas are much higher and likely to rise further after a wave of industrial disputes at Foxconn, Honda, Toyota, and Omron.

Wages in China are low, this is true. We\’d like the Chinese (as with all poor people) to be richer than they are.

A fourfold increase in wages in only a decade looks like whatever system it is we\’re using to get there is working.

As, indeed, Marx himself would have noted would happen. If average productivity rises then wages will rise: for capitalists will be competing with each other to capture the profits that can be made from that newly more productive labour. The only time this won\’t happen is if the capitalists are able to become monopoly purchasers (monopsonists) of that labour and that\’s what Marx (and of course many other economists) have been warning about since.

We should also upgrade that workers\’ pay number. Things cost different amounts in different places. So PPP exchange rates give us the difference in living standards rather than market exchange rates which give us just the difference in actual cash.

At market rate China\’s GDP is about $5 trillion, at PPP more like $9 trillion (close enough for our purposes). So multiply those wages by 180% to get an idea of living standards. $7,000 a year then. About half a full time US minimum wage.

Certainly not a King\’s Ransom by any means but it\’s quite a lot higher than we\’re usually le to believe and more than that, it\’s moving in the right direction.

And finally to the most important point:

Associated with this problem is the misunderstanding of what international trade should do to wage rates. It is a fact that some Bangladeshi apparel factories manage to achieve labor productivity close to half those of comparable installations in the United States, although overall Bangladeshi manufacturing productivity is probably only about 5 percent of the US level. Non-economists find it extremely disturbing and puzzling that wages in those productive factories are only 10 percent of US standards.

Finally, and most importantly, it is not obvious to non-economists that wages are endogenous. Someone like Goldsmith looks at Vietnam and asks, \”what would happen if people who work for such low wages manage to achieve Western productivity?\” The economist\’s answer is, \”if they achieve Western productivity, they will be paid Western wages\” — as has in fact happened in Japan.

It just ain\’t a race to the bottom. As those entire economies become in general and on average as productive in their use of labour as we are then the wage level will rise, in general and on average, to be the same as ours.

It\’s a race to the top and ain\’t it just great?

1 thought on “I\’ve said this before”

  1. Wages in China are not low — the Chinese are not breatharians… they need to buy homes, food, clothes, fuel and so on, just like we do. $3900 buys a lot more in China than the minimum wages buys here.

    Note that the Chinese can actually live on their wages without having claiming the dole, whereas it’s impossible to live in the UK unassisted by tax credits on the minimum wage, which is why all those people go onto the dole as work no longer pays a living wage.

    So, for as long as this is the case, it is plain to see that at that level, Chinese workers earn far more than UK workers already.

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