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Home Publications Blogs Beat the Press Labor Shortages in China Are an Argument Against Raising the Yuan?

Labor Shortages in China Are an Argument Against Raising the Yuan?

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Tuesday, 30 November 2010 05:34

In the NYT they are. In a world where we have 9.6 percent unemployment and the deficit is problem #1, anything is possible.

The NYT reported on evidence of serious labor shortages in export centers and then told readers today:

"China can point to the labor shortage in the export hubs as one reason not to let the renminbi’s value rise, since companies are already grappling with the possibility that higher wages could make their goods less competitive. A significant currency appreciation could help cause a wave of business failures and bankruptcies, Chinese officials say."

Okay, black is white, night is day. This makes zero sense. China would have a good case against raising the value of the currency if the opposite were the case. If it had high unemployment so that reducing its exports could create serious deprivation and social unrest, then it would have a good argument against raising the value of its currency, but low unemployment?

If high labor costs push a firm out of business then this is because it uses its labor less efficiently than other firms. This is known as "capitalism." Firms that cannot compete are supposed to go out of business. Furthermore, in the context of a tight labor market, the bankruptcy does not even hurt workers, since the employees of a bankrupt firm just go over to one of the other firms that are desperate for workers.

The evidence in this article should support the case of those who believe that China should raise the value of its currency. That case should have been made to readers.

Comments (6)Add Comment
...
written by izzatzo, November 30, 2010 6:51
If high labor costs push a firm out of business then this is because it uses its labor less efficiently than other firms. This is known as "capitalism."


The USA should be so lucky to have China's 'shortage' problems. China does capitalism better than the USA.

Even when labor costs were lower, along with surpluses that threatened serious unemployment, China quickly applied Keynesian policies to head it off as the USA stared flatfooted, mired knee deep in a recession largely unnecessary, fueled by ideological Supply Siders.

Sock Puppet reporters for the Supply Siders make these absurd errors because their world never allows anything beyond full employment with concurrent scarcity, tradeoffs and temporary shortages.

If it did, they would be forced to explain why "free market" capitalism can come to equilibrium below full employment on its own, like in the USA, and they're not going to go there.
...
written by skeptonomist, November 30, 2010 8:06
Let's define our terms. Is "capitalism" really a system in which free markets operate to produce the greatest benefit for all, or one in which the return on capital is maximized and labor costs are minimized? The former would probably exist only in a world in which capital has no special political power.
...
written by Brad, November 30, 2010 9:13
Well, Chinese policy would make sense if it is meant mainly as a gift to politically powerful exporters. It would have been useful if the Times had explored this possibility.
Effects
written by Jeff Z, November 30, 2010 9:48
Just another version of a "weak" currency acting like a subsidy for exports and a tax on imports.

AS dean points out in other writings, the strong dollars relative to the renminbi acts as a tax on U.S. exports to China, and a subsidy for Chinese imports into the U.S.
...
written by fuller schmidt, November 30, 2010 12:28
Apparently facts and logic are losing their foothold in human culture faster and faster. Marshall McCluhan predicted in the 1950's that the shaman would once again become most powerful.
But workers cannot leave China to work for firms in Vietnam
written by al, December 06, 2010 11:49
Dean says "the bankruptcy does not even hurt workers, since the employees of a bankrupt firm just go over to one of the other firms that are desperate for workers"

But that is not what really happens or even could happen. The workers can't just leave China to go work for a lower cost competitor in, say, Vietnam.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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