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Rising Wages in China


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March 20, 2006

Rising Wages in China

Michael Mandel

Take a look at this BW article about fast-rising wages in China. Could make a big difference.

09:15 AM

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? China's labour pains: rising wages from New Economist

Some good news for Chinese workers. A labour shortage is driving up wages in China by about 10% a year, reports Business Week in a new article, How Rising Wages Are Changing The Game In China:Wait a minute. Doesn't China have an inexhaustible supply o... [Read More]

Tracked on March 23, 2006 02:56 PM

? China is Expensive -- NOT. Go Second Tier and Life is Good. from China Law Blog

The China media story du jour seems to have shifted recently from raves about two dollar meals to stories on how China is getting too expensive for business. This new line says wages in China are up, good Chinese employees [Read More]

Tracked on April 2, 2006 01:16 AM

This could be both bad news and good news. The bad news is, this is likely to accelerate inflation. Companies will absorb the costs for a time, but eventually they will have to raise prices; and once they start, why would they stop before they hit the maximum the market will bear? As pointed out in your article "Young Americans Take It on the Chin" the under-35 sect is witnessing extremely meager real growth of income and wealth; in fact, if inflation were higher (I think it is, but we'll go with the official numbers for now) they would have a declining standard of living. When inflation does accelerate from this development in China (and I suspect India) it will send those under 35 into a real decline - a spiral they may not be able to get out of. With costs of living going up from accelerating inflation and housing prices inflated out of reach of their weak incomes we're facing a real crisis of standard of living. We've gotten a cheap ride on the back of the rest of the world for the past decade, and that's helped us from reaching the tipping point; but that cheap ride may be over....

The good news? Maybe, just maybe, it will become financially reasonable to move manufacturing back into the United States. Maybe. I'm not holding my breath.

Posted by: Brandon W at March 20, 2006 11:18 AM

Rising Inflation

All this talk about rising wages in china causing inflation. I'm a bit confused. I was taught that inflation is caused by an increase in the money supply. How do rising wages in china cause an increase in money supply? Will the Fed print more money because of rising wages in china?

Also an interesting note for economist who are simultaneously against increasing the minimum wage and for productivity gains caused by automation and other innovations. Notice how the rising wages is causing the Chinese companies to be innovative in ways they otherwise wouldn't have. I wonder what productivity gains we are missing out on here: A robot that stocks shelves maybe? A checkout without a cashier maybe? An automated fast food restaurant?

Posted by: Joe at March 20, 2006 09:55 PM

"Last year salaries surged 40%, to an average of $160 a month... With the gap between wages in China and those elsewhere gradually closing..."

Come on, 160 a month? There's still a helluva gap there dude!

Posted by: sredni_vashtar at March 22, 2006 10:47 AM

Brad DeLong offers some interesting predictions concerning Chinese inflation and the trade deficit by way of Martin Wolf's Economics Forum:

"... a wave of domestic inflation in China will appreciate the real value of the renminbi even without nominal appreciation."

"The most likely scenario, I think, is that over the next half decade price levels in Asia will rise substantially enough to curb imports into the U.S. and boost exports, and that the U.S. trade deficit will thus shrink back down to sustainable levels without any great macroeconomic upset in the U.S."

Posted by: Brandon at March 22, 2006 02:01 PM


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