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Chinese Minimum Wage to Increase by 20%: Is That a Good Thing or a Bad Thing?

RP Siegel | Wednesday December 21st, 2011 | 0 Comments

Chinese silk factory

On January 1st, 2012, a couple of weeks from now, the minimum wage in Guangdong, the center of China’s automotive, electronics and textile industries will increase by 20%.

What does that mean to us? Is it a good thing or a bad thing, and what, if anything, does it have to do with sustainability?

Let’s start with the last question first, because I believe it holds the key to the others. Understanding sustainability means understanding the many ways in which everything is connected, and learning to see how every action has consequences that may extend well beyond the immediate.

Let’s take for example, those great deals we’ve been getting on Chinese-manufactured products that are available at Wal-Mart and other big box stores. We are certainly happy to see them as we scurry about, doing our holiday shopping. So happy, in fact, that we momentarily forget about some of those nagging problems we keep hearing about, like, for example, the high unemployment rate. You know, those abandoned factories and shut down stores that you passed on your way to the mall? Might there be a connection?

According to the Wall Street Journal, citing a study conducted at MIT, “New research suggests the damage to the U.S. [from cheap Chinese goods] has been deeper than … economists have supposed.”

The study also found that “regions most exposed to China tended not only to lose more manufacturing jobs, but also to see overall employment decline.”

So as Chinese wages increase, this could actually be a good thing for the US economy. Back in October, I cited a piece in the Harvard Business review that suggested that rising Chinese wages have set the stage for a resurgence of American manufacturing. That piece went on to discuss the role of productivity in that equation, which is a significant one. But most any reversal to the trend, in which more goods are manufactured here, will be good for us.

Of course, we have all seen the jobs follow cheap labor before, first to Japan in the eighties, then to Mexico in the nineties, and then to China. Yes, there will be other moves to Southeast Asia, for instance, as the race to the bottom continues, but that race appears to be just about over, as there are fewer and fewer workers remaining that are willing to undercut the Chinese.

This is also a good thing. According to Brecher and Costello in their book, Global Village or Global Pillage, “In a competitive market, sales generally go to the competitor who offers the lowest price. As a result, prices tend toward the level of the lowest cost producer. When this tendency lowers the price of goods and services through the improved efficiency touted by the advocates of free-market forces, the effect may be benign. But when corporations and governments lower costs by reducing environmental protection, wages, salaries, health care, and education, the result can be malignant-a “downward leveling” of environmental, labor, and social conditions.”

What’s more, when Americans buy more goods produced domestically, that reduces shipping distances which conserves fossil fuels and reduces emissions. It also means that the goods will be more likely to be produced in an environmentally and socially responsible manner.

As Chinese workers see their wages go up, from roughly $200 a month to $240, which by the way is a reversal to the wage stagnation that is so prevalent everywhere else, including a rise in low income jobs as a percentage of total employment, they will be able to become consumers in their own right, strengthening the Chinese domestic market and moving the focus away from that of an entirely export-driven economy.

So while it’s true that the price of that $29 Chinese DVD player might go up to $35, that is still an incredibly low price. And when you consider all of the other benefits, I would say that this Chinese wage increase is a good thing for just about everyone.

[Image Credit: markb120, Flickr]

RP Siegel, PE, is the President of Rain Mountain LLC. He is also the co-author of the eco-thriller Vapor Trails, the first in a series covering the human side of various sustainability issues including energy, food, and water.  Like airplanes, we all leave behind a vapor trail. And though we can easily see others’, we rarely see our own.

Follow RP Siegel on Twitter.


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