Nov 6, 2012

The End of Cheap Chinese Labor

China is becoming a middle-wage country. If the annual rate of wage growth of 13.8 percent over the past decade is maintained, the average real wage in urban China would reach $20,000 in U.S. dollars by 2020. As benchmarks for comparison, U.S. compensation for manufacturing workers reached $20,000 in 1980, Japanese compensation for manufacturing workers reached this level in 1986, and the annual wage in Korea reached $20,000 in 1995, according to the U.S. Bureau of Labor Statistics. Even if China’s wage only grows at par with productivity at 11.3 percent per year, the Chinese average real wage will reach $20,000 by 2022. Similarly to other middle-wage countries, China needs to make a transition toward higher value- added industries, whether export or domestic.
The text and graph are from the paper "The End of Cheap Chinese Labor" by Li et al., published in the new number of the Journal of Economic Perspectives
The authors argue that even though there are still important barriers to mobility of rural workers (such as the hukou system), mobility has increased substantially, and today many rural people do not work in agriculture any more. 

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