Blog
A Lewis Turning Point? Wages in China
8th June 2010
The Telegraph reports that FoxConn is raising wages for workers at its factories by 70% with effect from the 1st of October. Following the latest rise the basic salary for production-line workers at Foxconn’s will have risen from 900 renminbi (£91.30) per month two weeks ago to 2,000 renminbi (£203). The article picks out some of the short and medium term factors driving average wages higher in the Chinese economy including the effects of demographic change in addition to labour shortages in many Chinese manufacturing heartlands.
It raises plenty of interesting economics aspects:
1/ Whether the wage hike will raise productivity still further - many economists believe that there is a positive relationship between pay rates and output per worker - the idea of efficiency wages 2/ How Chinese manufacturing businesses will absorb the increase in unit labour costs 3/ The extent to which consumers in the developed world will now pay more for their digital gadgets 4/ The impact on domestic living standards and consumption in China and on demand for household goods and services
In several ways the Chinese authorities will support the lifting of average wages - China now aims to boost private sector capital investment and consumption to cut dependence on the fiscal and monetary stimulus that countered the effects of the global financial crisis
Foxconn is not the only foreign-owned company in China to decide to raise wage rates. Honda, Japan’s second-largest automaker has recently reached an agreement with most of the 1,900 employees at a Chinese parts factory to raise pay by 24 percent after workers walked out on strike.
More here from the BBC news web site: Foxconn gives workers second pay rise
See also: Apple boss defends conditions at iPhone factory
And more here from Bloomberg Economy
“China, once an abundant provider of low-cost workers, is heading for the so-called Lewis turning point, when surplus labor evaporates, pushing up wages, consumption and inflation, said Huang Yiping, former chief Asia economist at Citigroup Inc. The result may prompt manufacturers to switch to cheaper countries such as India and Vietnam. “
Geoff Riley
Geoff Riley FRSA has been teaching Economics for over thirty years. He has over twenty years experience as Head of Economics at leading schools. He writes extensively and is a contributor and presenter on CPD conferences in the UK and overseas.