Economics Essay writing question:
What do soaring Chinese wages mean for global manufacturing?”
Economics Essay writing review Solution:-
Summarizing the article
China being the world largest manufacturer and also the provider of cheap labor is moving towards dearer wages due to global demand and supply factors. Becoming the fifth largest producer in global manufacturing of smartphones, televisions, steel pipes and other products china has surpassed America in the year 2010. China has so cheap labor and produces so cheaply that they are successful in highly curbing the inflation in many of its partner countries it is trading with. But this era of cheap labor is on the verge of drawing too closely (The end of cheap China 2012).
The costs are soaring high in the coastal areas of china, where several of its factories have been historically clustered. With the increase in the cost and prices of land, increase in the taxes for environmental and safety regulations have highly increased the cost of manufacturing. The biggest of this entire factor is the increasing costs of labor. As per the article on 5th march a survey released by the standard charted bank of 200 Hong Kong based manufacturing organizations operating in the area of Pearl River delta, it has been analyzed that the wages rate has already been raised by 10 % in the current year 2012. It can also be seen from the analysis that the company Foxconn, a Taiwanese contractor manufacturing organization that makes iPad for apple in the area of Shenzhen has increased its rate of wages and salaries by 16-25 % in the month of February. It can be seen that the labor in china is not cheap is it was in the past (The end of cheap China 2012).
As per as American firm that has been working in china and using the contract laborers and manufacturers for making of prams in the southern part of china, the labor costs have been at a rise of more than 20 % in the year as compared to the rates in the past four years. The main reason behind this is losing of powers in the coastal provinces to suck workers away of the hinder land. Due to this the migrant workers often visit to their home in the Chinese new year break, as in the previous year 95 % of the workers returned while only 85 % of the workers returned (The boomerang effect 2012).
As per the article when it has been asked by the American chamber of commerce located in shanghai to its members the biggest challenges they are facing, more than 91% of the members respondents said it’s the rising cost of manufacturing in china. The cost of for the blue collar workers has been increased with 12 % per annum which is in the terms of dollar value from the year 2002 to 2009 and in shanghai by 14 %. As per J. Wuttke an industrialist with the EU chamber of commerce membership in china is of the opinion and predication that manufacturing costs in china will become twofold by the year 2020 and the main reason behind this is the increase in the cost of labor and wages (The end of cheap China 2012).
The countries that make products and services more cheaply as compared to others are mostly running the sweat shops, and the labor in china was cannot be doubted was cheaper, this was the main reason due to which several of the toy making companies have moved from Hong Kong to the china mainland. But the increase in the level of prosperity in the china mainland, the workers in china are asking for more and more pay, more benefits and shorter hours of working and this is just like factors that have happened in Japan, South Korea and Taiwan (The boomerang effect 2012).
The labor cost in china is growing with the pace of 20 % per annum. The main reason for the increase in the labor costs is interaction of the forces of demand and supply of labor in the market place. This is also justified by the wage fund theory that wages are dependent on the relative investment or amount of funds that are made available for the payment of wages to workers and also depends on the size of labor force acquired. The increase in the level of wages is of the reason that wages rises with the increase in the level of capital or also with the decrease in the number of workers (The boomerang effect 2012).
Some of the business in china is stirring from the coastal regions to the inland china, due to the lower cost of labor there, even though the infrastructure is not up to the expected level. There are several advantages available to china with even after increasing labor costs. As Chinese suppliers are reliable as compared to moving to other countries like Vietnam several organizations decided not to leave china even due to soaring prices of labor and are planning for replacing some of the workers with machines in order to keep the costs under control. All these factors of changes in the prices of labor and the cost of wages is related to the wage theories which represents that mainly the prices of labor is affected by the changes in the demand supply factors of labor in the market area (The end of cheap China 2012).
China is the large market for the production of cheaper goods and services. It is a large electronic market and several large producers like Apple have their plants in china. With the increase in the prices of production due to the increase in the costs of labor or wages there will be a high increase in the international prices of the products and services. With the increase in the demand for labor increasing in china the labor costs are increasing due to the short supply of labor and this is impacting the market. With the high prices charged in the china due to labor costs increase even are forcing firms to continue their operations in china due to the highly skilled labor force. As compared to china there is 30 % cheap labor in Sri Lanka but they are less efficient than the Chinese labors (The end of cheap China 2012).
As per the article there are several advantages to china even with the increasing wages rates as Chinese the Chinese productivity is also increasing. The Chinese market is also booming with a high pace, and the Chinese workers are highly paid because they are also producing more and more. China also has the advantage of large market place and having a large pool of labor, and this is also flexible enough to accommodate the variations in the seasonal demands and seasonal industries. As per the article the in New York times an organization which is working on making iPhone was able to rouse around 8000 workers from its dormitory and can easily put them on its assembly lines at midnight, this shows the large pool of labor power china is accommodating. China also has a sophisticated and supple supply chain. Thus this shows that even with the increase in the wages of the workers in china due to the movements of the demand and supply factors in china there is a least impact on the Chinese economy (The end of cheap China 2012).
The demand for the labor is affected by the four main factors i.e. the productivity of labor, the factors and advancement of technology, the demand for the products and services produced and also by the price of the capital input used for the purpose of production. The shift in the demand for labor is the factor which changes with the industries demand as a whole and also represents the demand for the labor in the market. The industry considered for the evaluation of the purpose of wages is the collection of total firms operating in the industry (Stirati 1994).
The major reason for the shift in the demand of labor is the changes in the demand for labor per unit and the change in the level of productivity.
Efficiency wage theory
As per this theory the wage model provides that the productivity of the worker is highly correlated with the amount of wages they receive. Looking this factor from the manufacturer of the firm point of view is only lucrative when paying a higher wage then the economic equilibrium if the marginal productivity of the workers is higher than the marginal cost of increasing in the pay. As pr the economic theory the changes in the prices of labour is due to the affects of the demand and supply of labour. As per this theory the wages is increased due to the higher productivity of workers as compared to the equilibrium production level of workers at national level (International Labour Office 1982).
Demand and supply of labour
With the factors of demand and supply determining the wage prices there is a steep increase in the prices of labour in china. With high demand for the cheap labour and the short supply due to the higher demand of wages by the labour there is a steep decrease in the supply of labour in the market due to which the prices of labour has increased in some industries, which has impacted the Chinese market which has been in demand for low cost of production (Mankiw 2011).
The cost of production is made up of several components mainly the materials, cost of production and the labour cost. In the competitive market condition the prices of labour for the firm is determined by the interaction of the aggregate demand and aggregate supply of labour. The demand for the labour in china is high due to the cheap cost of production available in china which has attracted the global market players to set up their production units in china. Due to the high demand of labour the market surged so high that there is a shortage of supply of labour in the market. There were unskilled workers in the initial period which served even at lower costs and with the increase in their skills and market showing demand for skilled workers the wages rate for the skilled workers have increased in the Chinese market (Lapides 2007).
Link between economic concept and the article
There is a great link in between the economic article under study related to the increasing wages level in china and the economic theories of wages. As in china the cost of wages are increasing and making the production of goods and services dearer, and this is due to the prevalence of the changes in the demand and supply factors in the Chinese economy. The economic efficiency theory of wages suggests that the higher wages can only be provided to workers when their marginal productivity is higher than the economic equilibrium production. As per the article the soaring prices of the labour have considerable impacts on the Chinese market of production and are affecting the large international players due to the increase in their cost of production. It can be inferred from the article that the increase in the demand of labours in the market and the increased prosperity is forcing labour to ask for higher wages.
From the above article it can be concluded that Chinese market is widely known for its cheap production capacities and large work force with which it can provide large amount of production, but with the increase in the demand the labours are asking for increased wages which already has been increased from the recent economic perspective. Applying the wage theory in this concept it can be said that the demand and supply factors have affected the prices of the wages in the recent period and have made the wages dearer as compared to the previous times and ultimately making the overall production cost to be more and dearer.
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