Friday, 2 March 2012

Myth-busting, or ‘Things you know that ain’t so.’ #366: Chinese wages

There’s another myth that’s done the round for years.  That globalisation is a “race to the bottom.” In the way it’s usually couched, we hear that cheap Chinese goods produced by cheap Chinese labour will lower labour costs (i.e., wages) all round the world.

This obviously ignores the enormous benefits to everyone who can buy these cheaper goods for less money, leaving everyone free to spend their remaining income on things they couldn’t afford before (making everyone’s real wages higher, even if their nominal wages stay the same).

It ignores the historical evidence from the likes of Hong Kong, South Korea, Taiwan and Japan, which in only the last half-century have leapfrogged from being low-cost low-wage economies producing objects of some scorn to places producing high-cost, high quality goods and services at wage levels higher than those of their western customers.

Not to mention that it ignores what is happening to Chinese wages themselves. And the fact to grasp hear is that as China itself grows wealthier, the gap between Chinese wages and American wages (which as we all know are higher than our own)will plummet:

US manufacturing wages were 22 times that of China's in 2005. Today, that wage gap is under 10 times and likely will be under five by 2015.

And if China continues on this path (which, for all sorts of reasons, is not guaranteed) then by 2025 …

the wage gap is shrinking

Meanwhile, if we continue to set up barriers to this new wealth (as so many local idiots continue to call for) our wages will be going the other way.

Somebody tell some of the local idiots.

[Hat tip TVHE who asks“Why fear labour market globalisation?”]

1 comment:

  1. A Chinese car manufacturer is opening a plant in Bulgaria, because the combination of labour and transport cost savings make it cheaper than manufacturing in China.

    Just like Taiwan, South Korea and Japan a generation ago.


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