Higher wages in China

Higher wages in China

According to a report of the Wall Street Journal wages in China are on the rise and affect profits

The contribution of household income in China’s GDP Gross Domestic Product is around 41 %, in the early 1980s its share was above 60%. In America the share of employee compensation is about 62 % of the national income.

China does not have a problem with labour productivity, the World Bank estimates that output per worker has grown more than 8 % per annum since the mid 1990s, but wages remained low and the benefits of rising productivity was beneficial to owners and investors.

Now there is a shift in demographics from excess supply of workers to excess demand in China’s labour markets. It is reported for the second quarter of 2012 that there was a sharp downturn in economic growth but there are still more vacancies than there are workers to fill the position. The impact of the shift on the distribution of income comes now to surface. In the first half of 2012 the average wages rose 13. % on an annual base and profits were down 2.2 %.

China is running the risk of a shortage of workers, combined with wasteful investment and both will threaten to accelerate wage growth and at the same time as labour productivity is decelerating. If this really takes place, evidently china will become rapidly less competitive and in the textile area East Chinese factory owners are already looking for cheaper options for production in Vietnam or elsewhere.

www.wsj.com


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