Chen Weihua

Pay hike won't bring back US jobs

By Chen Weihua (China Daily)
Updated: 2010-06-17 06:48

A hike in minimum wages following high-profile labor strikes at Honda plants and suicides at Foxconn factories in China have prompted some Americans to think that this latest development will help bring jobs back to the United States.

That seems to be only wishful thinking.

The basic pay increase of 20 percent in China would only raise the minimum wages in Shanghai, which has the highest base wage on the Chinese mainland, to 1,344 yuan, or less than $200 a month. It is only a fraction of what a US worker receives under the $7.25 federal minimum wages per hour standard.

In essence, a worker paid the lowest minimum wage in the US still comes six times as expensive as the one receiving the better minimum wage in Shanghai.

Take Honda and Foxconn factories in south China's Guangdong province, for example. Recent labor tensions have helped lift wages to 2,000 yuan, or less than $300 a month. That is still a tiny part compared to the $50 to $80 hourly wages and benefits that a unionized autoworker in Detroit earns.

In this sense, the pay hike in China will only have marginal impact compared to the huge cost of labor in the US. Of course, this does mean some low cost manufacturing jobs will exit China. But they will only go to even lower cost developing countries such as Vietnam or Bangladesh.

Even within China, many low paying jobs have been moving from coastal cities to cheaper inland provinces in the past decade.

As for the US, such manufacturing jobs are simply gone for good. The US no longer has any comparative advantage in such industries compared with China and other developing countries. This is Econ 101.

A revaluation of the Chinese currency, even by 25-40 percent as suggested by Fred Bergsten, the director of the Peterson Institute for International Economics, won't help change this either.

It won't be substantial enough to offset the high cost and bring back to the US the millions of manufacturing jobs lost in the past decade.

In fact, most foreign companies have beefed up their China presence in recent years. Besides exploiting the cheap labor, many multinationals, such as Nike and General Motors, are cashing in on the market of 1.3 billion consumers. For instance, China sold 13.6 million vehicles last year, overtaking the US to become the largest auto market.

Not only will the low paying manufacturing jobs not come back, even some relatively high paying American jobs are increasingly going to developing countries as seen by the off-shoring of software design and other services.

Over 70 percent of IBM's employees, for example, are now based overseas. The company cut its US workforce by about 10,000 in 2009.

Even in the clean tech industry, which US President Barack Obama actively promotes, the US imports about 70 percent of the components and systems used in renewable energy projects, according to the Apollo Alliance, an organization funded by unions, foundations and some businesses.

So the jobs that have gone, and the coming loss of more jobs to Chinese, Mexicans, Malaysians, Indians and Vietnamese will be a tough reality for Americans in the coming years.

US Department of Labor statistics show that 8.4 million jobs vanished in two years following the recession in December 2007.

But these are all not jobs going to China and other developing countries. Automation and a lean enterprise following the recession has eliminated many jobs the world over in the past two years.

The high US unemployment rate, around 10 percent, has forced the Obama administration to make job creation a top priority. Obama has promised tax incentives and low-cost credits, and he has vowed to create some 2 million jobs through doubling US exports in five years. But economists and business officials have expressed doubt regarding the fulfillment of that target.

No one is certain where the new American jobs will come from, but it will surely emerge from more innovative and hi-tech industries.

The increasing number of Chinese state and private companies going global in recent years will also help the jobs market to a limited extent. A 2010 survey conducted among 1,277 Chinese companies showed that 344 of them have invested overseas, with the US as the top destination.

The US job market still looks bleak, but thinking that a 20-percent raise in minimum wages in China will change the picture is ignoring basic economics.

E-mail: chenweihua@chinadailyusa.com