If all hourly wages in China were doubled, what would happen?

[begin_within]

Just wondered. I don't see how anyone can live on $50 per month, even in China.

[LiberallyInclined]

1. chinese workers would take home twice as much money.

ummmmmm- duh?
:eyes:

[whistle]

2. Without any rise in productivity among Chinese workers.....

...the costs of all Chinese goods and services would go up. They would not necessarily double, but profits would be squeezed, production would slow and Chinese workers would get laid off. Unlike the price per barrel of crude oil, which now appears to be inelastic (demand continues to pay whatever is charged), importers of Chinese goods (that's what we mostly import) would be elastic, that is the importers (Disney, Wal-Mart, etc) would start to look for cheaper sources of supply. They would raise prices, but as that happens the consumers in the U.S. would push back and use/buy less. Then demand would fall and Chinese workers would be put to work building weapons for China's massive army.....wait, that's what capitalistic countries do!!!

[Psephos]

5. That sounds like an argument against raising minimum wage here in the US

Or if it's not, I'd be interested in the difference.

Peace.

[whistle]

6. The question by the poster was: "If ALL hourly wages in China...

...were doubled, what would happen?" So, I was responding to what I understand is accepted wage/price/productivity theory consequences of such action.

I'm not sure how you made the jump from my explanation of what would likely happen in the Chinese economy if that policy of doubling ALL hourly wages there with no expectations of corresponding productivity increases and/or profit margin cuts, and attacking me as arguing against raising minimum wage levels here in the U.S.? The two have absolutely no relationship.

China has a labor force that is easily four to five times larger than the labor force in the U.S. The U.S. has 160 million total workers (plus or minus)of which 8.2 million are unemployed (5.1%). Average hourly wages of production or nonsupervisory workers on private non-farm payrolls were at $16.03 for May 2005 (see: ftp://ftp.bls.gov/pub/suppl/empsit.ceseeb11.txt ).

As for China:

<snip>
Just How Cheap is Chinese Labor?
Reliable data don't exist, but the U.S. government is doing some sleuthing

Every year the U.S. Bureau of Labor Statistics compares manufacturing labor costs in the U.S. with those of about 30 global rivals. Its latest report, on Nov. 18, showed that average hourly compensation of foreign factory workers rose 12% in 2003, measured in dollars, compared with 4% in the U.S.

But these statistics have a glaring omission: China. The BLS can't compare Chinese and U.S. factory labor costs because reliable statistics from the Asian giant don't exist. That makes it hard to assess China's competitive strength.

Now, the info deficit is starting to be remedied. This past summer, the BLS hired a Beijing-based American consultant, Judith Banister, to dig through China's mountain of incomplete and sometimes unreliable statistics. The goal: to calculate average manufacturing compensation in China in 2002 -- the last year for which data was available. BusinessWeek was given a preview of her findings, which she will present to the BLS later this month.

Her estimate? The cost of Chinese factory labor is a paltry 64 cents an hour. Although that figure is rough, since it's pieced together from sketchy statistics, it's still the most thorough estimate ever compiled. It includes both wages and employer contributions for benefits and social insurance. And it covers not just city factory workers, who get the most attention, but the more numerous rural and suburban factory workers as well. For comparison, hourly factory compensation in the U.S. in 2002 was $21.11, and an average of $14.22 in the 30 foreign countries covered by the existing BLS report.

<more>
<link> http://www.businessweek.com/magazine/content/04_50/b3912051_mz011.htm

Note that the $0.64 per hour for Chinese workers is based on an estimate of about 103 million Chinese factory workers of which only about 30% are tracked in any reliable manner (see article). But the entire labor force of China including both skilled and unskilled workers likely runs from 650 to 800 million persons (15 years old or older) and might actually be larger. Many of these workers are used to grow food to feed China's vast population, many others work hard and long hours just to eat and have a place to sleep. With numbers of human workers like these, how on earth could doubling ALL of the base wages do anything but inflate China's cost of living. The immediate impact of that would be a disastrous depression throughout the country and would throw hundreds of millions of unskilled workers and their families into unemployment and starvation.

The minimum wage level in the U.S. however could be increased to narrow the wage differentials without such a drastic consequence, because the actual numbers of U.S. workers receiving minimum wage as a percentage of total work force is much smaller (about 10%). You are comparing pineapples to oak leaves!

[Psephos]

7. Thanks for the valuable information

I think you misunderstood me, though. I was not trying to attack you in the least. (I know from my own experience that one never knows when an attack may materialize here, though, so I understand the hair trigger.) I merely thought you sounded like someone whose opinion on this would be valuable (and I was right).

I do think there is some usefulness in examining the effects of a hypothetical doubling of Chinese wages without corresponding productivity increases, and trying to project the effects of raising of American minimum wages without corresponding productivity increases. Not much of a relationship, I know, but every ray of light leads to better illumination.

Further, the Chinese labor rate and its global effects is just plain interesting on its own.

Peace. I've seen your posts in the past and they're always thoughtful.

[Oversea Visitor]

3. Overheating

Rampant Inflation.

[Lydia Leftcoast]

4. A couple of things

1) Some inflation in China

2) Chinese workers would still be cheaper than American workers.

[1932]

8. Some facts/thoughts from Stiglitz's Globalization and its Discontents:

China has a lower measure of poverty than the rest of the world - $1 a day, vs $2 a day (perhaps because so much of life in China is so cheap, with everything being socialized for so long). Nonetheless, China has dramatically reduced the number of people who meet that standard over the five (IIRC) year period prior to Stiglitz wriging his book. It was reduced by 100s of million down to somewhere between 100 and 200 million -- so people in China are getting richer.

Development in China is not about making a few people rich on the backs of the poor.

I believe last year China totally eliminated hunger.

And, as John Edwards points out, they're not after the worlds low paying jobs. They're after the world's high-paying jobs, which is why they're putting millions of people through universities right now.