The End of the Low Wage Model?

13 Feb

China’s low wage model of competitiveness is thought to have been a key factor in their rapid economic growth over the last few decades due to promotion of prosperity (Gladstone R, 2014). Mr da Silva, the ex-leader of Brazil, says that yes China is competitive because of the model however “there’s no welfare program, there’s no obligation to workers, pension funds and trade unions” therefore people earn extremely low wages (2014). Therefore many have argued that it may be efficient in some respects for the communist government, but in terms of bargaining rights for citizens, it simply isn’t fair.

In the last decade wages have tripled in China, questioning whether the low wage model could potentially be coming to an end (ILO, 2012). This is mainly applicable to SOE’s however there has also been a sharp rise in wages across private enterprises, both small and large, over this time period too.  In the public sector however, statistics show that wages are as low as ever.

Low wages may not be so important to China anymore, because productivity is rising too. Also China’s labour market is so large and flexible that any shocks in demand for products or seasonal changes can be accounted for, maintaining China’s exporting competitive edge (The Economist, 2012).

It is thought that the Chinese government would like to create a more balanced and sustained economy that indeed does not rely so heavily on its exporting capabilities. The government have been increasing China’s minimum wage since the beginning of 2003 as well as cutting agricultural tax altogether in efforts to increase rural worker’s pay. However it still remains, that there are large wage inequalities between rural and urban workers (ILO, 2012).

Wages have increased, as all statistics show, however the base from which the growth occurred from was so low, that wages of the Chinese people on the whole are still far behind fully developed countries such as the United Kingdom and the United States. The economic transition and reform has left many better off but the gaps between SOE’s and the public sector, as well as gaps between rural and urban workers, may yet question whether the low wage model in China truly is finishing.

 

Gladstone, R. (2014). “Ex-Leader Says Brazil Won’t Follow China’s Low-Wage Model.” Americas. New York Times.

International Labour Organisation (ILO). (2012). “Is it the end of a low-wage production model in China?” Global Wage Report 2012/2013. ILO News. International Labour Organisation. 14th December 2012 [ONLINE]. Available at: http://www.ilo.org/global/about-the-ilo/newsroom/news/WCMS_192956/lang–en/index.htm . [Accessed: 13th February 2014].

The Economist. (2012). “The End of Cheap China.”  The Economist. 10th March 2012 [ONLINE]. Available at: http://www.economist.com/node/21549956. [Accessed: 12th February 2014].

 

Charlotte Griffith

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