For advanced students of economics, the first thing I thought of when I saw this headline was, "this is factor price equalization in action."
The Rising Power of the Chinese Worker - The Economist
Many people lamented our free trade agreements because American manufacturing jobs were being shipped overseas to places like China. China had relatively cheap labor compared to American manufacturing and a repressive government which kept them from striking and demanding higher wages. So, producers naturally decided to take their manufacturing plants where they could pay the least for labor, and thereby maximizing their profits.
The Heckscher-Ohlin model predicted that as we moved towards a global labor market, jobs would flow from high wage countries to low wage countries in the short term, but that wages in the two markets would eventually equalize in the long term. Eventually manufacturing wages in countries like China would rise, and and wages in USA and Europe would drop, but they'd settle somewhere in the middle. It's been decades since we've opened free trade with China, but we are starting to see empirical evidence to back up their predictions. Even I was skeptical that this would work since most of the countries to which we were exporting our jobs had repressive governments which would not allow for the labor organizing we experienced here in the US in the late 1800s and early 1900s - particularly the countries where labor leaders were frequently executed by the government.
Great post. There have definitely been some great economic phenomena in the last few years, especially with it having been almost three decades since the Cold War, marking an end to First World country wars. I think this has a lot to do with international confidence in additional to liberal movements in 'repressive' governments like China. Pretty exciting!!
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Isn't it ironic that most people associate China as a communist state, which is supposed to be pro-labor, and yet they have done nothing but crack down on worker's rights? They are CINO for sure, but so is every other "communist" regime. If anything, China has been laissez-faire economics in the extreme.
ReplyDeleteAnyway, hopefully they'll allow their workers to demand better working conditions. That can only end up helping domestic labor in the United States.