South-Western EconNews

China’s Wages on the Rise, and Workers Grow Scarce

Topic

Labor Markets

Key Words

China, wages, prices, labor supply, demand, skilled labor, unskilled labor.

Full Article

If you have an InfoTrac or BCRC access code, click on the appropriate source to login and view the full text article.
Reference ID: A168124010

News Story

China is experiencing the strange problem of not having enough workers to operate some of its factories. As a result, factory owners are being forced to raise wages to bring in additional help, or to simply shut down production lines. It’s a phenomenon that’s not likely to end anytime soon.

The worker shortage is not affecting all levels in China’s economy. The supply of skilled laborers is still strong, and the overall unemployment rate is above zero. Factory workers are hard to come by, because they are aiming for the jobs that require some skills, and therefore command higher wages. And those at the mid-level in the labor force are looking for jobs that pay even higher wages. The result is that pockets of labor shortages are appearing throughout China. Such shortages began to be seen in 2003 in urban areas, and it’s predicted to hit even rural areas by 2009.

The end result is an increase in wages to bring people back into the factories. Wages at one bicycle factory in China have risen from the equivalent of $197 a month to $263 a month, and that’s just since this past February. Granted, some of this is the result of increased productivity; workers with higher productivity will be rewarded with higher salaries. As a result of increased productivity, factory owners can offer higher wages without passing on those cost increases to consumers because of the increased output.

However, the cost of goods imported from China has increased 1.2% since February, according to the US Labor Department. In July, the department reported a 0.4% increase over June’s prices, the biggest jump yet. It’s becoming clear that such wage increases will go beyond compensation for higher productivity, and will begin to hurt consumers.

And there’s a secondary global cost, also: as Chinese workers receive higher wages, increasing their income and standard of living, they will begin demanding more and more goods that to this point they had been unable to afford. Think of the global impact of an increase in Chinese demand for cars, air conditioners, gasoline, etc. There is a significant risk for higher global inflation as China’s standard of living increases.

Questions

Discussion Questions:
1.	China has a one-child policy, in which families are given incentives to have only one child. Will this policy help, or exacerbate, the problem identified in the article? Why?
2.	Assuming that this labor trend in China continues, what might be the impact on wages in the US? Why do you think this?
3.	As wages in China continue to rise, what will happen to China’s comparative advantage in production of goods with low-skilled labor?
Multiple Choice/True False Questions:
1.	According to the article, wages in China are increasing because Supply is rising faster than demand is rising. Supply is falling faster than demand is falling Supply is rising more slowly than demand is rising. Supply is falling more slowly and demand is falling.
2.	The cost of Chinese goods in the US is rising because: Production costs are rising Demand is falling Supply is falling Both A and B
3.	According to the article, China faces a labor shortage throughout its economy. True False

Source

Bradsher, Keith. “Wages Up in China as Young Workers Grow Scarce,” The New York Times, August 29, 2007.

Instructor Discussion Notes

Discussion Notes
These notes are restricted to qualified instructors only. Register for free!