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Home Publications Blogs Beat the Press The NYT is Upset that Wages in China Are Rising

The NYT is Upset that Wages in China Are Rising

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Saturday, 19 January 2013 16:49

Wow this is really getting incredible, yet another piece about how China is going to be suffering because it has a declining labor force. The big problem seems to be that we may not be able to count on cheap tee-shirts from China. The prescription is that Chinese people should have more kids so that we can have more cheap labor. The downside is that it will take 20 years before the kids born today will be able to join the labor force. 

That is only a slight caricature of the blogpost by the usually insightful Vikas Bajaj. The obsession with the declining labor force in China, and the nearly universal conviction that it is bad, displays a seriously confused view of economics.

Let's say that China's labor force declines at the rate of 1 percent annually for the next four decades. So what? This means that the price of labor will rise and the least productive jobs will go unfilled. This is what happened in the United States when people left the farms for better paying jobs in manufacturing. Farmers no doubt felt there was a labor shortage, but that is how market economies work. Less productive businesses go under, do Bajaj and his fellow China worriers want to stop technological progress?

In terms of being able to support a rising population of dependents, it is important to keep productivity growth in this picture. China's economy had been growing at the rate of 10 percent a year. Even if this slows to 7 percent as many predict, it will allow workers to enjoy much higher after tax income even if an increasing portion of their wage is diverted to supporting China's elderly population.

The arithmetic here is simple. If wages rise in step with productivity growth, then after 20 years wages will have risen by 287 percent. Even if the tax burden on workers increased by 20 percentage points over this period they would still have far more after-tax income than they had when the dependency rate was lower and the economy was less productive.

What is especially bizarre is that the obsession with the prospect of a declining population takes no notice of the horrible pollution problem that China faces in Beijing and other major cities and also the problem of global warming. A declining population will help to directly address both problems. The fact that China slowed its population growth was an enormous service to humanity. 

Comments (5)Add Comment
Labor costs
written by Jennifer, January 19, 2013 7:59
It is interesting how, whether it is China or the US, there is the implicit assumption that increases in labor costs are bad.
Again the "must grow population" folks don't allow for substitution of capital for labor
written by John Wright, January 19, 2013 8:45
From my view in electronics manufacturing, the capability of semiconductor devices is improving every day.

Microcontrollers are getting more capable, computer memory is getting better, with new technology projected to drive ever more improved devices in the future.

The sensors that microcontrollers connect to are getting more accurate. Sensor supporting integrated circuits continue to improve in price/performance.

The application of semiconductors to controlling motors is getting more sophisticated.

Go to a website such as ti.com (Texas Instruments) or analog.com (Analog Devices) and see what two semiconductor suppliers offer.

As this new technology is incorporated in new robots or improved manufacturing equipment, the requirement for human labor should decrease.

Google for "Foxconn robots" to get some indication this is being considered by one contract manufacturer that has a large presence in China.

This could also apply to human health care.

Probably the predecessors of the "always more human workers are required" prognosticators made similar projections for the need for ever more horses in 1890.
Housing Prices Need to Rise in America, Because Wages Never Will
written by Last Mover, January 20, 2013 5:51
How is the next asset bubble in America supposed to finance consumption of imports from another country when wages in that country increase?

Any economist knows there can't be both, rising wages and rising house prices. Otherwise the result is a deep recession.

Apparently China figured this out and plans to reverse the trade surplus it has with America by buying up excess financial and medical services no longer affordable by Americans, to go with the new houses Chinese labor is getting with higher wages.

For the first time ever, trade will benefit both trading parties.
Mistitled
written by Thaomas, January 20, 2013 7:47
Good points but why the headline "NYT Upset ..." rather than "NYT Blogger Upset ...
...
written by watermelonpunch, January 20, 2013 12:39
Good points but why the headline "NYT Upset ..." rather than "NYT Blogger Upset ...


I think I can give the explanation a try...

Because this isn't like some blogger on Xanga or Tumblr, or even FreeThoughtBlogs.

This is a newspaper.

The most popular newspaper web site in the U.S.

It has an editor. These are journalists.

And "Taking Note Blog" on the New York Times web site, is "Political commentary the editorial page editor."

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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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