China is Suffering from Both Labor Shortages and Surpluses (of the same type of labor)

Print
Sunday, 12 December 2010 21:16

Yep, that's when you know when your economy is really in trouble. The NYT told readers today that China is suffering from inflation:

"Wages have also risen sharply this year in coastal provinces amid reports of labor shortages and worker demands for higher pay. Many analysts expect more wage increases next year.

"That may be good for workers, analysts say, but it will also change the dynamics of the Chinese economy and its export sector while contributing to higher inflation."

One might think a good remedy for this situation would be to raise the value of China's currency, which would reduce exports and the demand for labor in export industries. This would alleviate the labor shortage and the upward pressure it places on wages and thereby inflation.

But, "Beijing contends that raising the value of its currency would hurt coastal factories that operate on thin profit margins, forcing them to lay off millions of workers."

Okay, so Beijing is worried that measures to alleviate the labor shortage that it is concerned about will lead to layoffs of workers. There is either something being seriously misreported in this news story or China's leadership has less understanding of economics than the leaders in the United States.