Question

What conditions might cause a country’s labor costs to remain low for an extended period of time? Use China as an example.

Answer 1

Labor costs are rising in Asia as Asians are now more likely to pay more for the products and services they receive, thus causing higher production costs. Many Asian countries have seen rapid wage growth since the late 2000s. One of the factors contributing to the increase in wages is due to the shift of the labor force from agricultural work to more productive work in the industry, the rapid increase in labor productivity, leading to wage growth. Workers will want better wages as Singapore's economic growth and costs continue to rise. In this way, companies will face pressure on their profits as rising labor costs lead to higher production costs.

Labor costs in China and India have risen in recent years. China was originally one of the countries with the lowest labor costs. Due to rising human demand and rising commodity prices, China is no longer considered the cheapest country to produce goods. China is considered less competitive than other countries. Rising labor costs have forced some foreign companies to leave the country in search of cheaper countries such as Thailand and the Philippines. Countries other than China are beginning to supply raw materials at lower prices, giving producers more choice than their suppliers.

The E&Y report for 2012 stated that "wages are driven by a long-term decline in the labor force, coupled with the rapid decline of the rural surplus, which until recently was the last source of labor. "Labor is cheap." But she warned that the division of labor from low-productivity agriculture to high-productivity production was coming to an end. Even before the Chinese economy began to decline, there were fears that it was facing a middle-income trap, with economists widely pointing out the dangers of the Lewis turning point, a phenomenon observed in Japanese history. Shows that rapid urbanization is leading the way. Production growth. However, this phenomenon eventually ends when wages rise and the country's competitive advantage disappears. The number of migrant workers in China has been growing at a slower pace than in 2005. Although there are 320 million agricultural workers, only 20 million have the potential to migrate to cities, prompting the country to have a time of "labor decline". Hands in the livelihood sector are fully absorbed in the modern sector, and as more capital collection begins to raise wages, ”- points out the Lewis scenario.