America: exporting high wages abroad

I'm always bemused by globalisation doomsday scenarios in which all of our jobs move to China (or India) in order to take advantage of low-wage workers. If we really do lose all of our high-productivity jobs, and no longer make anything worth having, why would the Indians and Chinese continue to ship us software programs and flat screen televisions? Obviously, for individuals this may be traumatic, but in aggregate, if our economy really gets less productive, we won't have to worry about a flood of cheap Chinese goods. Although if the Chinese and Indians do want to ship us their products in exchange for absolutely nothing, I'm willing to talk.

The other reason this doesn't work, of course, is that as these economies expand, demand for workers pushes up their wages. That's why we no longer buy cheap gimcrackery from Japan. According to the New York Times today, this is already happening:

For decades, many labor economists said that China’s vast population would supply a nearly bottomless pool of workers. So many people would be seeking jobs at any given time, this reasoning went, that wages in this country would be stuck just above subsistence levels. As recently as four years ago, some experts estimated that most of the perhaps 150 million underemployed workers in the countryside would be heading to cities.

Instead, sporadic labor shortages started to appear in 2003 at factories in the Pearl River delta of southeastern China. Now those shortages have spread to factories up and down the Chinese coast, specialists say.

This summer, Mary Gallagher, a Chinese labor specialist at the University of Michigan, visited five sportswear factories near Shanghai and Guangzhou. She found them all struggling to hire and retain workers. One had shut one of its two main production lines because it had nobody to sew shirts and other garments.

“Basically half the factory was shut down and one dormitory was empty,” Ms. Gallagher said.

In interviews, factory executives across the country complained of being forced to give double-digit raises in order to find and keep young workers at all skill levels. Three or four years ago, said Zhong Yi, vice general manager of a leather-jacket manufacturer in Hangzhou in east-central China, 800 to 1,100 yuan a month ($105 to $145) “was a good salary.”

“Now,” he said, “1,500 is the bottom” ($198).

Chinese officials are quick to say that there is no overall shortage of labor — rather, there is a shortage of young workers willing to accept the low wages that prevailed in the 1990s. Factories in cities like Guangzhou advertise heavily for young workers, even while employment offices consider it a success if someone over 40 can find any job in less than a year.

“Now they’re taking workers into their early 30s,” said Jonathan Unger, director of the Contemporary China Center at Australian National University in Canberra, “but anything older than that and they think they can’t take the conditions, the 11-hour days,” as well as work on weekends, and a tedious life in factory-owned dormitories.

Plant owners’ refusal to hire blue-collar workers over 35 or 40 is colliding with the demographic reality of China’s one-child policy. The number of workers in the 20-to-24-year-old range is already shrinking as more of them go to universities instead of entering the work force after high school, and the International Labor Organization projects that workers in this age range will edge slowly downward through at least 2020.

Stand by for Chinese politicians complaining that America is exporting its high wages and labor standards to countries that don't want them.

One wants to know, of course, how much this is affected by inflation in China. The Chinese government has not been able to perfectly sterilize its interventions in the global currency markets. All else equal, buying foreign currency in order to push down the relative value of your money should translate into domestic inflation; so in order to un-paribus the ceteris, the Chinese government has been taking a number of measures to soak up the extra liquidity, notably selling bonds. But there is a limit to the effectiveness of these techniques, not least because the fragile banking system cannot absorb an infinite supply of government bonds. As it is, the government has jammed more bonds into the system than the bankers want. Moreover, its rather primitive financial system makes monetary intervention less effective than it might be. The result of the currency interventions, and China's rocketing growth rate, has been steadily rising prices. The government is now exploring alternative anti-inflation measures, like price controls, to battle it.

Presented by

Megan McArdle is a columnist at Bloomberg View and a former senior editor at The Atlantic. Her new book is The Up Side of Down.

The Man Who Owns 40,000 Video Games

A short documentary about an Austrian gamer with an uncommon obsession

Join the Discussion

After you comment, click Post. If you’re not already logged in you will be asked to log in or register.

blog comments powered by Disqus


The 86-Year-Old Farmer Who Won't Quit

A filmmaker returns to his hometown to profile the patriarch of a family farm


Riding Unicycles in a Cave

"If you fall down and break your leg, there's no way out."


Carrot: A Pitch-Perfect Satire of Tech

"It's not just a vegetable. It's what a vegetable should be."


An Ingenious 360-Degree Time-Lapse

Watch the world become a cartoonishly small playground


The Benefits of Living Alone on a Mountain

"You really have to love solitary time by yourself."

More in Business

Just In