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 Globalization for the Good
The important thing is Chinese productivity is rising
The Economist, United Kingdom Friday, July 16, 2010

Tyler Cowen
Chinese labour is really cheap. It is lower than half the average wage rate of Mexico. But, the wages are rising as of higher productivity. High capital investments in China would lead to higher wages. It could even be said that higher wages would make workers more productive, Moreover, it will boost US and european exports, writes Tyler Cowen in The Economist.

CHINESE labour is still pretty cheap, at least by Western standards.


That said, it’s a mistake to focus on the absolute level of wages in assessing the Chinese economy. The real question is what you get for your money, when you hire a worker. If Chinese wages are rising, it is because Chinese workers have shown that they are more productive. All the capital investment in China is yielding dividends in terms of greater output per worker and that’s good for virtually everyone.

And it’s not just capital investment. Sometimes the very act of hiking wages makes workers more productive. It boosts morale, gives them a greater stake in the job, and signals opportunities for further advancement.


It is sometimes suggested that China’s export-oriented industries have drained all the possible labour out of Chinese villages. It’s unlikely this is true, but if it were (or when it does become true) think what that would mean. It would mean that all possible Chinese labourers were mobilised into projects of mutual gain: higher wages for the workers and better and cheaper products for foreign consumers. That would be good news, not bad news, and it would mean that the global economy has put to work all of the cheap labour available, in the process raising living standards.

Higher Chinese wages also mean the country will spend more money. That will boost U.S. and European exports and help rebalance the world economy.

If it is somehow the case that the wealthy economies need labour which is cheaper than that currently offered by the Chinese, there are plenty of other countries on the rise, including large parts of a highly populous Africa.

In the question stated above, “cheap” is a misleading word. The more productive China becomes, the cheaper its labour will be, at least relative to what you get.

This article was published in the The Economist on Friday, July 16, 2010. Please read the original article here.
Author : Tyler Cowen is professor of economics at George Mason University
Tags- Find more articles on - Europe | productivity | tyler cowen | US | wages

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