The keys to higher wages

There is a very sound economic reason that rising wages in China probably will NOT cause export prices to rise. Rising labour productivity is very likely the reason that Chinese business owners can afford pay increases, not their benevolence, as your report suggests. In fact rising labor productivity is the ONLY way that labour can be paid more. Undoubtedly Chinese businesses are investing in more capital equipment, and it is rising capital investment per worker that underlies all worker wage gains. To pay workers more out of a sense of benevolence would lead to a lack of competitiveness and would bankrupt any firm in a very short time. Undoubtedly the beneficial effects of globalization, which is just another word for increasing the specialization of labour, is driving low wage jobs out of China and into other developing countries, just as happened with Japan after World War II. At one time the label "Made in Japan" held connotations of inexpensive, poor quality trifles. Not any more. Did Japan attain its economic eminence by paying its workers more out of the goodness of its capitalist hearts? Of course not. Japan pays higher wages because its workers produce more and better goods that can be sold at a profit even at low prices.

More capital per worker, flexible labour rules, and sound business management are the keys to higher wages--always have been and always will be.

Source: Patrick Barron wrote the above piece, which is an excerpt from a letter to the New York Times. Mr Barron teaches Austrian economics in the USA and regularly comments on American economic policy.

FMF Policy Bulletin/15 June 2010
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