China's minimum-wage increase will raise prices around the world
globalpost.com
globalpost.com
It'll take a couple of generations though, what with differences in education, training, etc. to work through.
I still want to know we can buy 50 cent items from China off ebay and have them mailed individually for free. How on earth does their postal service (and our local country's) mail something that cheaply? Cannot quite grasp the logic.
It's stuff like 99-cents-for-ten-gallons shampoo that is most profitably produced in China, and that will probably remain the case.
What would probably happen first is other countries will be targeted for low wage labor, I am thinking Vietnam.
This doesn't look like it's going to end well.
On the other hand, China's deposit requirements for houses are draconian. Think 40% down. And the national government has been screaming bloody murder at house prices for quite some time, trying to ram all sorts of measures through to control house prices.
Also, some of the ghost cities are kind of fictitious. I know one which was built on edge of a growing city, which rapidly filled up. There were some more developments in cheaper locations that looked a little iffy, but the one on the international news sites wasn't really a ghost city.
What they really need to do is widen their tax base. Income taxes are a joke, because people lie on their tax returns. Taxing the sale of houses creates perverse incentives. One option (which fits in well with their Marxism and focus on productivity) is to tax land. That would keep house prices down, and create a fair tax base - no more millionaires living in mansions paying no tax because they have better accountants. They also need to reform government spending, and make the local governments more honest, but that's easier said than done - they are already executing bad eggs left right and center.
Think about that, it's even worse. In the US if your mortgage goes bust your bank takes more loss than in China where it's the home owner. And the home owners were regular middle class people trying to save their money from inflation AFAIK. Now it's likely to lose >30% value overnight because of the bubble. They had real-estate prices comparable to Europe and US with income nowhere near that so the IMO bottom is very deep. You don't think that's going to cause unrest ? There are already protests about this. Add to that protests about inflation and other social problems China faces.
I don't think it's going to end well, and that's going to have huge implications for the world economy. And potential unrest are just going to accelerate flight of capital caused by increasing production costs.
There is no externality here. I pay a worker a small amount of money, he performs labor for me. Can you point me to a third party that is harmed?
If not, there is no externality to the employment transaction.
Which approach is best depends partly on the elasticity in the labor market. China is implicitly betting that demand for Chinese labor is not very elastic, at least if we're talking about wage hikes that aren't orders-of-magnitude, so they can extract some extra money for low-paid workers via a minimum wage, thereby reducing the burden of the government having to do something about those workers separately.
Although it's also quite possible, as one of the other replies suggests, that this has more to do with economic policy, e.g. trying to slow down an overheating economy.
That's why forcing criminals to pay for their bad acts is generally considered a good economic policy.
Further, even supposing paying workers a low wage intrinsically causes them to commit crimes, it's still not clear that this is an externality created by the employer. Would the (non)-worker commit fewer crimes if they had no job at all?
But more importantly, the government policy actions haven't been the most important factor at work; many employers have been raising wages ahead of and above the minimum wage hikes, and have been actively sending out recruiters for the first time. Many of them have started having a hard time finding enough workers for the first time, after spending the past couple decades seeing long lines form for any job posting. The Chinese labor market has been tilting toward workers' favor on its own, with workers having a lot more options. This will keep pressuring wages up in the coastal provinces, keep redistributing production and domestic spending power to the inland provinces and other countries in southeast and south Asia, and keep spreading domestic demand throughout, all of which is overall good for all of them, and good for the rest of us.
On a kind of unrelated note, I'm hoping that the digital economy starts to really placate our need to buy useless physical stuff.
It is probably naive, but I still have some hope for technology to be an empowering, equalizing force that will make the world a "flatter" place.
The only question is whether richer countries will actually collapse down to a lower level, or if they will just stagnate until the poorer countries catch up.
(Personally, I hope the latter.)
I also see more UPS batteries that are made in Vietnam instead of China.
Inflation is caused by increasing the monetary base and having that new money circulate through the economy. Both the US Fed and the Chinese central bank have been doing this.
This is why in the US we probably* don't need to fear hyperinflation: we're not seeing a translation of Fed printing to wages.
*When the Weimar Republic hyperinflated, it was made possible by the fact that large numbers of people were employed by the state, whose wages increased with inflation. I've heard some statistics that place a substantial portion of the US population on government inflation-index income (be it something like social security or something more indirect like Medicare). As to whether it's to a great enough extent to create a Weimar type situation, I don't know.
Sarcastically speaking, this couldn't come at a better time.
Africa?
Most state figures, which indicate a higher rate above the minimum wage, are either made up and/or only include urban working residents, usually those in state owned/controlled enterprises or large "privately" owned enterprises.
Krugman took it one step (actually there was even more people in between pushing the theory forward, as Hecksher and Ohlin) further and his point was that economies of scale will make it beneficial also for economies of similar development level to trade with each other.
This is like the Walmart Union situation in which the workers don't realise that Walmart makes money because these people are willing to work at minimum wage so walmart can undercut local competition. If walmart starts paying above-market-rate for wages, then it can no longer undercut local competition, meaning a lot of stores will close because they don't have a high enough profit margin, meaning mass lay offs.
IMO unionising isn't worth it if I have a 1 in 5 chance of getting laid off, especially if it means I won't have luck at finding another job.
No, people in 21st century US should not live in misery and fear of losing their job.
Walmart obviously has many other advantages over smaller competition other than the wages. It won't close because of say 20% wages increase.
If a Walmart store closes, local people obviously will continue to buy food. I.e. there will be many new stores open, ex-Walmart employees will be in a good position to take advantage of that, as they know the local customers.
IMO unionizing is the only sensible strategy for any employee, that is easy to replace. Especially for employees of not so ethical corporations like Walmart and Zynda.
Some back of the envelope math shows that if Walmart gave an across the board 50% raise to every employee it would consume it's entire operating profit.
If they were forced to pay $15 per hour I think they would make a few changes.
1. They would accelerate the deployment of rfid inventory control, vastly reducing the number of stockers, and completely eliminating cashiers--all those employees would now be unemployed.
2. They would squeeze their suppliers even more, and the suppliers would be forced to cut their employees salaries.
You contradict yourself in your statement: "IMO unionizing is the only sensible strategy for any employee, that is easy to replace."
So what about that person who wants to replace that other worker? He doesn't get to have a job, I guess, because there are no openings. Unless you create more by decree. Eventually you're Greece.
As an entrepreneur (and I thought this site was full of them), these kind of laws and regulations hinder what products and services you can bring to market. Costs are too high. So what do I do? I'll either shelf the idea, or figure out how to build a machine that's cheaper than labour. Both result in more unemployment.
Thanks, I could say something complimentary about you too.
As for the rest, the two other commenter's have illustrated you're naive on the issue.
Unions have been bad for business since labour laws took their place some thirty years ago. Way too many workers here in Canada are union, and it isn't helping the US Steel workers who got themselves out of jobs for a year cause they were stupid enough to strike for a wage hike in a recession.
I don't know about this. My globe shows an entire continent yet untouched, complete with good ports and hundreds of millions of potential cheap laborers who I imagine would be more than happy to find a Walmart factory in their neighborhood.
Namely, the multinational corporations of the 1880's and on made such a mess of things that many of the countries now have very little infrastructure and spigot economies where multiple parties jockey for control of the natural resource(s) and hence power in the country.
Barring some sort of radical change, this situation isn't changing any time soon for most places.
The irony is (excepting south Africa and Egypt which have their own histories), the only stable countries where companies might be able to set up shop are the ones with no natural resources, because there's not much to fight over.
If you had told most Americans just 30 years ago that China would be a land of millionaires and gleaming cities and high-skill factories, they'd be flabbergasted, not least because the country was run by an incompetent Communist dictatorship that had starved millions of its own people for no good reason.