(China Daily)
Updated: 2008-01-28 09:10

[The author Ye Tan is a commentator on finance and economics based in Shanghai.]

The Ministry of Labor and Social Security drafted a salary regulation last week that is to be submitted to the State Council soon.

Although the details of the regulation are still not available, the authorities have offered enough information for us to understand the regulation as a way to raise the salaries of common workers, ensure their incomes grow at a reasonable rate and eliminate unfairness in income distribution.

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However, it will be difficult to achieve such fine goals without offering workers more substantial leverage against their employers.

In a sound economy, salaries should more or less be in harmony with the rate of economic growth. In other words, the lives of common people should improve as the economy grows.

If the average standard of living improves much slower than the economy grows, it could soon lead to a lopsided economic structure: Wealth is distributed in an unfair manner, domestic demand stagnates and recessions loom.

Such a scenario took place in the United States in the 1920s and in Latin America in the 1980s.

Things in China are not that bad, but we cannot afford ignoring the potential anymore.

According to research by Wen Yueran, a labor scholar with Renmin University of China, the proportion of labor costs in China's GDP dropped by 12 percentage points between 1990 and 2005. The decrease was almost the same as the concurrent decline in the share of people's bank deposits compared with overall deposits.

Such changes suggest that common laborers are not the primary beneficiaries of economic development. This fact is also behind the sluggish domestic demand, the economy's unreasonable structure and the non-performing pricing mechanism of the market.

Given this situation, it is virtually impossible to expect the market to permit salary increases to match economic development while preventing the potential threat to the sound economics posed by the huge difference.

The market is not capable of doing so because resources are allocated not just by the "invisible hand" of the market, but in partial response to the influence of administrative power. This pattern can only be corrected by administrative power itself.

Moreover, the groups that have enjoyed the advantages of unfair resource allocations will try their best to maintain the status quo by objecting to fair competition. Only the government has the strength to confront their efforts.

A practical analysis of the low salary environment also suggests the market is incapable of helping put more money into workers' pockets.

The abundant supply of labor in the market is the first element putting workers in a disadvantaged position when it comes time to negotiate salaries. The current laws and regulations do not grant them a way that is both simple and economical to push for more money.

The fact that high-ranking officials, even the country's premier, are working to help migrant workers get delayed wages is solid proof that workers have to go to extraordinary lengths to get their just pay.

The new salary code has many antecedents. There have been several legal documents governing labor issues, including the Labor Law. Most of them have clauses about regular salary rises, but few of them have succeeded in establishing an effective mechanism to guarantee that the raises are actually granted.

Despite such stipulations, many employers choose to simply ignore things like minimum wages. But such violations usually go unpunished unless the government steps in.

Qiu Xiaoping, a senior official with the Ministry of Labor and Social Security pointed out recently that the ministry had been working on raising the salaries of common workers. And labor departments at all levels have urged local governments to increase their minimum wages. But these efforts have not hit home either.

So as laws go only partially enforced, administrative bodies should realize their central role in protecting the interests of labor instead of assuming the market will do the job.

And even as administrative bodies struggle to help workers and better distribute wealth, other policies seem to work against their efforts.

The best example in this regard is the favorable treatment enjoyed by monopoly players. The wide gap between the incomes of common workers and the employees of monopoly players is the result of such favorable treatment.

Several lawmakers have stressed that it is improper to "force companies to raise salaries" in a market economy. They are obviously concerned that such compulsory legal stipulations might hurt the efficiency of the country's fledgling market economy.

But if the law and administrative bodies protect the interests of people who already enjoy considerable advantages instead of the rights of all people, or if they attach more weight to the efficiency of monopoly players than the fairness of the market, they are actually doing their own damage to the market economy.

The authorities have every reason to revise the law to give more leverage to common workers and to link wages to the consumer price index. This would allow the country's market economy to develop on a more sound basis.