labor - The wage-debate heats up

The Washington Post this weekend politely disagrees in an editorial with earlier articles in the New York Times and the Financial Times that the current wage increases in China's southern production halls heralds a profound change in its economic structure.

Responding to the New York Times assertion that China's rising manufacturing wages are "threatening at some point to weaken China's competitiveness on world markets," Morgan Stanley's Mr. Roach [of Morgan Stanley] notes that "[p]roductivity growth in China's industrial sector -- manufacturing, mining and construction -- surged at an average annual rate of nearly 20 percent over the 2000 to 2004 interval," which was "well in excess of the cost pressures implied by 12 percent gains in hourly compensation." Thus, unit labor costs probably declined over the past five years. At worst, they were very well contained. Mr. Roach finds the "labor shortage in China" argument to be "equally preposterous." He cites the 60 million workers that have been furloughed by China's state-sponsored enterprises since 1997. And he points to the fact that China's rural population totals nearly 750 million, "by far the largest pool of surplus labor in the world."

What is going to make a difference is the wage level of the more educated sections of the economy. Getting a good insight there might be more important than the relatively marginal changes (in terms of the total costs) of factory labor in China.