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.