Tuesday, 27 March 2007

China's Labour Costs: How Low Can You Go?

Hot on the heels of my post on "The China Price" comes this new article in the World Economy (an excellent academic economics journal dealing with globalisation issues including a good selection of empirical and policy papers).

Note again that the exchange rate gets a mention - low wages as previously mentioned are not the sole driver of China's growth in exports and manufacturing production.

Library registration required to get full text PDF.

Just How Low are China's Labour Costs? by Janet Ceglowski and Stephen Golub

This paper provides a new perspective on Chinese international competitiveness in manufacturing using relative unit labour costs. We find that Chinese unit labour costs are about 25–40 per cent of US labour costs. They are also low relative to costs in the EU, Japan, Mexico, Korea and most other newly industrialising countries. However, China's relative unit labour costs indicate a substantially smaller cost advantage than that implied by a comparison of wages alone. China's cost advantage derives from large currency devaluations that preceded the establishment of a de facto peg around 1995, and rapid productivity growth in the period since 1995.

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