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Amy Traub

Could Rising Wages in China Boost American Cities?

The minimum wage in Beijing is up 20 percent this year. In export giant Shenzhen the minimum just climbed 15.8 percent. And 18 other cities and provinces across China have hiked their base wage as well. To stave off strikes and a highly publicized spate of workplace suicides, foreign manufacturers have increased pay and improved working conditions. Rising wages represent long-overdue good news for the overworked and poorly paid employees who make the consumer products Americans use every day. But could it be positive for American workers – and the economies of our hometowns – as well?

Consider the American jobs lost and U.S. wages suppressed by unfair trade with a country that – before what appears to be a recent policy shift – regularly used the power of the state to repress workers and keep wages down. In March, economist Robert Scott at the Economic Policy Institute issued a report concluding that 2.4 million jobs were lost or displaced as a result of U.S. trade with China between 2001 and 2008. (This is a net figure, representing the job lost even after accounting for the new jobs that were created as a result of China trade.) Cities like Los Angeles, Austin, and San Diego saw the most employment disappear, and job losses were also steep in the Chicago metro area (18,000-plus jobs lost) and the Denver and Portland regions. Most of the lost jobs were manufacturing positions, middle-class jobs with good benefits to support families.

What’s more, Scott argues:

“Competition with low-wage workers from less-developed countries has also driven down wages for other workers in manufacturing and reduced the wages and bargaining power of similar workers throughout the economy. The impact has affected essentially all production workers with less than a four-year college degree—roughly 70% of the private-sector workforce, or about 100 million workers. For a typical full-time median-wage earner in 2006, these indirect losses totaled approximately $1,400 per worker (Bivens 2008). China is the most important source of downward pressure from trade with less-developed countries, because it pays very low wages and because it was responsible for nearly 40% of U.S. non-oil imports from less-developed countries in 2008.”

Could an increase in Chinese wages begin to reverse the trend?

It’s important to note that Chinese wages remain very low – in Beijing, for example, the new minimum wage amounts to no more than $140 a month – so it’s not as if American labor is about to become competitive on the basis of cost alone anytime soon. Yet analysts are already speculating that rising wages in China could push up the price of Chinese imports to the United States. If that happens, Americans would find it relatively more affordable to buy to buy domestically produced goods and American exports might see a boost as well, all helping to bolster American manufacturing and create jobs. Ultimately, better-off Chinese consumers could even provide a market for American-made goods. While other low-wage countries are no doubt eager to grab their share of footloose factories, it’s unclear whether they have the infrastructure to quickly support a shift in manufacturing big enough to change this dynamic.

Today, the U.S. trade deficit with China is still growing and China has yet to revalue its artificially low currency, a step that would magnify the impact of rising wages on U.S.-China trade. It’s going to take more than a bump in China’s legendarily low pay to create a real boom in U.S. manufacturing that could bring good jobs back to American cities. But increasing wages in China represent a step toward more balanced world trade.

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Posted at 10:49 AM, Jun 11, 2010 in Cities | Economy | Trade
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