Opinion
Low-wage era not over yet
By Qin Xiaoying (China Daily)
Updated: 2010-07-08 14:05
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Abundant supply of cheap labor and uneven regional growth graphs mean workers' rights need to be defended
The State Council recently urged relevant departments to step up efforts aimed at raising the minimum wages of the nation's ordinary workers.
This was the latest move to change the status quo - of workers' pay being lower than that of government employees, especially those working for State-run monopolies.
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This intensive media scrutiny, along with the decisions by Foxconn and Honda to significantly raise the minimum wages of their mainland staff, has led some to believe that the era of cheap labor has come to an end in China.
Some foreign news outlets, such as the Financial Times, have also published similar opinions predicting an end to cheap labor in the world's largest developing nation.
Is this really the case?
The country's massive number of ordinary workers, who often work for next to nothing, has contributed to the fast growth of the economy over the past decades.
Given that the share of total wages as a proportion of China's GDP has been falling, the country's average wage levels have also dipped considerably.
Some complex factors, ranging from the influence of a planned economy to defects in China's legal safeguards for workers and insufficient understanding by employees of their rights and interests, are at the heart of such a situation.
Some have attempted to answer this question from the perspective of corporate ethics and responsibilities.
Yet, all these factors will only partly explain the reasons for low wages in the country.
The law of the market tells us that the price of labor - or wages - is mainly determined by the demand-supply ratio.
Wages will decline once labor supply exceeds market demand and increase in case of the opposite.
As a country with a 1.3 billion population, China is surplus in labor supply.
The country's accelerated urbanization drive has led to the flow of hundreds of millions of laborers from less developed rural areas into the cities.
As a result of this migration, China's labor supply has long exceeded market demand and the wages of ordinary workers has been comparatively lower for a long time.
At the same time, the country's labor unions have failed to protect the legitimate interests and rights of ordinary workers.
The nation has yet to set up an effective mechanism aimed at facilitating negotiations between employees and employers for better wages and other welfare measures.
In China's labor market, where supply exceeds demand, ordinary employees are usually at a disadvantage when it comes to dealing with their employers.
Quite often, they are likely to be replaced by other workers waiting in the wings if they decline to accept the existing wage structure.
The situation is unlikely to change under the country's current labor supply-demand landscape.
The lack of a well-developed wage mechanism is also partly to blame for the country's prevalent low-pay conditions.
China's current wage earners may chiefly be categorized into three groups.
The first group comprises enterprise managers, most of whom usually enjoy a comfortable yearly salary.
The second group includes public servants and other administrative personnel, whose income is usually composed of basic wages and bonus, with the latter sometimes forming the lion's share.
Ordinary employees, the largest wage-earning group, make up for the third group, and their incomes are mainly through basic monthly salaries, with bonuses forming just a small proportion of the pay structure.
Such a kind of wage structure has led to enormous income gaps among the country's different labor groups. It has also become one of the most difficult issues for the country to regulate.
In addition to the above two factors, the uneven level of economic development across the nation is also responsible for the prevailing low wage situation.
The experiences of developed countries suggest that the upgradation of a country's industrial structure, along with ensuing improvements to employees' educational level and labor skills, will catalyze its transition from a low-wage to a high-earning destination.
In this process, the labor-intensive industry will transform into one that provides high value-added services. Such a transformation means the elimination of some backward industries and the elevation of labor quality and technique.
Yet, things will continue to be different in China.
For a large developing country with a huge population, it is impracticable to eliminate the huge number of labor-intensive industries, the chief source of employment to many.
China must shift some of its labor-intensive sectors from developed coastal areas to the vast and comparatively less-developed central and western regions - a move that will only prolong rather than eliminate the country's low-wages scenario.
The Chinese government has adopted a series of tough measures to intervene in labor-capital relations in order to help raise employees' wages, but no obvious progress is expected in the near future given the lag effect of any government policy or regulation.
The country will have to go a long way before it can adopt a new and more reasonable wage system and then put that into effect.
Under these circumstances, it is still too early to conclude that the era of "cheap labor" has come to an end in China.
The author is a researcher at the China Foundation for International and Strategic Studies.