Those quite high wages at Foxconn

When the allegations were put to Foxconn by the Observer, manager Louis Woo confirmed that workers sometimes worked more than the statutory overtime limit to meet demand from western consumers, but claimed that all the extra hours were voluntary. Workers claim that, if they turn down excessive demands for overtime, they will be forced to rely on their basic wage: workers in Chengdu are paid only 1,350 yuan (£125) a month for a basic 48-hour week, equivalent to about 65p an hour.

Agreed, those aren\’t particularly high wages.

But they are high wages by Chinese standards. £125 a month basic wage is roughly $200 a month ($208 at current exchange rates) or $2,400 a year.

GDP (nominal) per capita in China is some $4,300.

So, as their base pay those workers are getting 56% of per capita GDP.

A weird way to look at it but for a reason. Our own GDP per capita is $36,000 a year or so. £21,000 ish. Same ratio of that, some £12,000 a year.

That is, about full time (37.5 hours a week) full year minimum wage for the UK.

No, not a fortune by our standards. But wages in other places aren\’t to be judged by our standards. They\’re to be judged by the standards of those places.

For what determines the wages of someone doing a job is not their productivity (ie, the profit that can be made out of their labour) in the job they are doing, but what is their productivity in the alternative jobs available to them? That is, what is the average level of productivity in those places?

It\’s for this reason that barbers or nursing aides get paid wildly different amounts in different places. The technology used is roughly the same (comb and scissors, damp rag and human grunt) all around the world, the productivity is roughly the same all around the world. But wage levels are wildly different: for in places with high average productivity (UK, US, Germany etc) the alternative jobs that these people could be doing have high productivity. In places with low average productivity (China, Nigeria, Bolivia, etc) then those alternative jobs have low productivity.

Which means that the way to raise Foxconn wages is to increase the productivity of the Chinese use of labour in general, across the entire economy. Something that\’s happening, to be sure, which is why Chinese manufacturing wages have risen by a factor of 4 in the last 15 years alone.

But it does mean that we really shouldn\’t be talking about \”wages of 65 p an hour\”. Because we should not be comparing Chinese wages with wages here: we should be comparing Chinese Foxconn wages with Chinese not Foxconn wages to try and see whether Foxconn wages are too low (or too high even).

Just to give you an idea of who is behind this original \”research\”, SOMO, the source, is:

This is one of the recommendations made by Tax Justice Nederland (TJ-NL) to the Dutch Lower House of Parliament. Parliament will be debating the Tax Treaty Policy Memorandum on 28 April. As long as foreign corporations continue to use the Netherlands to avoid tax in developing countries, these countries will not benefit. The TJ-NL Alliance, of which SOMO forms a part,

Yup, they\’re linked to Ritchie.

3 thoughts on “Those quite high wages at Foxconn”

  1. Similarly, I’ve been wondering why this “people living on under one dollar a day” is some metric for poverty. Yeah, it’s an indicator, but a poor one. Because a dollar can be a lot of money in some places. It all depends on what you can get with the dollar. Granted, in the modern world, no one with a dollar’s income per day is rich, but for a subsistence farmer, grow-your-own-food and a dollar per day may still be better than 99 % of human history has been.

    People really should read economics and understand that the nominal value of money that someone has isn’t the most important thing – e.g. Mark Twain:

    Tim adds: Ah, but the $1 a day metric (it’s actually $1,25 now) is on a PPP basis, taking account of differential prices. I’ve made a similar adjustment, by using nominal GDP in the calculation….rather, a different adjustment, but one that does similarly allow rpoper comparison.

  2. This is why I sometimes use the ‘RMIAC’ tag with Murphy-related posts. His flagrant* advocacy of resource misallocation runs the risk, were anyone to act upon it, of actually killing people.

    * yes, flagrant. I maintain his manifold bêtises are not inadvertent. When it comes to which side of the fool/knave split I’m on, I favour knave. That is to say, I depart fro my almost universal ascription of bad outcomes to stupidity rather than malevolence. It’s moot, though. Fool? Knave? Whether RMIAF or RMIAK, RMIAC.

  3. So Much For Subtlety

    That guy wasn’t really called Louis Woo was he?

    Co-incidence or is Larry Niven popular in China?

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