Rising Chinese wages

China's boom is driving up wages, and reducing her competitive advantage.  For the lowest costs, go to Vietnam or Bangladesh.

David Barboza reports: Labor Shortage in China May Lead to Trade Shift (NYT, April 3).

Barboza reports that the export boom in coastal China has driven wages up substantially in the last few years.  Reports of labor shortages suggest substantial excess demand at current wage rates, and continuing wage increases.

It's not all demand driven - labor supply side factors are also beginning to bind: development in China's interior is beginning to reduce the flow of immigrants to the coastal regions.  Moreover, demographic factors are reducing the supply of young people, and especially young women - and thus of a key source of potential internal emigrants.

To avoid higher coastal wages firms are shifting production to the interior, or abroad, to countries with a cost advantage over China, such as Vietnam and Bangladesh.

No statistical information, or serious analysis - a collection of anecdotes and observations.  And at least one skeptic.  While the "sign" of the effect makes sense, it's hard to identify the "magnitude" from the story.

Comments

[Scott Peterson]

Given that China has hundreds of millions of citizens in its hinterlands that have a standard of living substantially lower than that of the coastal Chinese, the idea that Vietnam or Bangladesh have labor cost advantages is absurd. China can either shift more of its population to the areas where workers are needed or shift some production to the hinterlands. Either tactic would benefit both Chinese citizens and the government of China.