The Problem of Rising Wages in China
The Times had one of the most convoluted articles yet on demographics. Apparently, China’s slowing population growth may lead to a shortage of cheap labor – no kidding the headline is “As China Ages, a Shortage of Cheap labor Looms.”
It wasn’t that long ago that I learned my economics, but back then this was THE POINT of economic development. Countries wanted to have more good paying jobs relative to the size of their population so that people would not be forced to take the bad paying jobs. I am not quite sure what theory of economic development the Times has where a lack of people in low-paying jobs is a problem. (Maybe we can make Times reporters do them.)
Just about everything else in the piece is equally incoherent. It gives us the warning of the rising ratio of retirees to workers. But let’s toss in some arithmetic. China’s per capita GDP is growing at more than 8 percent annually. This means that in a decade, per capita income will have more than doubled. Suppose the tax burden was raised by 10 percentage points to cover the higher ratio of retirees to workers, this would leave the average worker more than 80 percent better off (assuming that income growth is distributed in proportion to current income, a very big assumption). What is the problem?
The article even warns that raising the retirement age may not help because that would mean fewer jobs for young workers. (But, wasn’t the problem supposed to be a shortage of young workers?)
The ratio of confusion to information in this article is extraordinary. It would be good if the reporter and/or the editor could give this issue some more serious thought.
posted by Dean Baker @ 10:56 PM
10 Comments:
At 11:31 PM,
James M. Jensen II said…
You would think that lower population growth would be looked on as a good thing considering how many people there are in the world. Parents having having fewer kids is the only ethical way to combat overpopulation that I can think of (well, assuming they aren't relying on abortion), except maybe incentives or mandates for vasectomies and tube-tying for those with serious diseases, but that's more to prevent further weakening our already weak collective gene pool and wouldn't have much affect by itself on population.
Wouldn't the economy eventually strengthen as population declines, leaving more resources and opportunities for work per capita?
At 11:47 PM,
Steve Sailer said…
Well said. China's bigger problem is that it still has too much cheap labor. There are hundreds of millions of inland Chinese still working knee deep in rice paddies who would love to be allowed to internally migrate to the coast and get factory jobs, but they aren't allowed to at present.
At 1:39 AM,
Anonymous said…
I do think fewer workers and slower population growths is for the better; however the standard problem I tend to hear about fewer workers is in proportion to the retired workers. If you have a ponzi scheme like U.S.'s social security in place, then what happens is the system totters because it's dependent on there being more workers at work than retired workers...
At 5:59 AM,
James Schipper said…
Dear mr Baker
China has about the same area as Canada and about 40 times more people. Another similarity is that one half of the country is practically empty. In Canada it is the Northern half and in China it is the Western half. A shortage of people can't be China's most pressing people. Even if people aging is going to be a problem, this problem is small compared to the problem of overpopulation. I may recommend that you read Who Will Feed China by Lester Brown.
The rural population of China is still about 800 million. That means that one farm family feeds only 1.625 family. I suspect that there is a lot of underemployment in rural areas. However, the Chinese government probably prefers underemployment in rural areas to unemployment and overcrowding in cities, which is probably why they don't allow complete freedom of internal migration.
Regards. James
At 10:02 AM,
Anonymous said…
This is definitely a problem. It now means, in the current logic, that there are jobs that native Chinese people won't do. They'll have to bring in people from somewhere else to be paid twenty cents a day.
At 11:30 AM,
Dale said…
anon
The Chinese should be so lucky to have a "ponzi" scheme retirement system like Social Security. Fully funded, healthy, well managed. Designed to take us through our demographic buldge with little or no adjustment.
I think you have re-defined Ponzi Scheme way up into the legitimate stratosphere of successful social demoratic policy.
At 7:03 PM,
christian h. said…
Well, every now and then the ruling class slips up and tells the truth - in this case, that economic policy has the goal of ensuring a steady supply of cheap labor ready for exploitation.
At 9:26 PM,
Anonymous said…
The normative value of rising Chinese wages is a matter of perspective. From the perspective of the Chinese, rising wages are a good thing. From the perspective of western business leaders who have offshored their enterprises into China to save money, rising Chinese wages are a very bad thing. Given the readership demographics of the Times, it's hardly surprising that they publish the perspective of most relevance to business interests rather than the one most relevant to workers.
At 10:34 PM,
__Fair Left__ said…
I am not quite sure what theory of economic development the Times has where a lack of people in low-paying jobs is a problem.
As others have stated, they don't operate on a theory of economic development but on a concern for corporate profits. Trends that forbode lowering rates of profit rates are worrisome, the opposite are grounds for optimism. Coherent, and reliably predicts the tone of coverage.
At 11:56 AM,
Anonymous said…
Wouldn't the economy eventually strengthen as population declines, leaving more resources and opportunities for work per capita?
The Chinese are lucky in that their government will no doubt allow this process to take place -- there is no way they will allow the immigration of, say, Filipinos to meet 'labor shortanges'. Contrast this to the attitutude of our own government
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