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The end of cheap Chinese labour?
Jul 18th 2010
The Economist

Some surveys show that migrant wages increased by 20% in the first half of 2010...thus conclude that the Lewisian turning point has arrived in China—that is, China has depleted its surplus labour and the period of cheap labour has ended.

...it cannot be made congruent with the fact that the countryside still has 45% of China’s labour force, but agriculture only contributes to 11% of China’s national GDP.

In 2007 there were 80 million rural people who were potential migrant workers. The Chinese economy was at its recent highest point in 2007; during the crisis, about 20 million migrant workers went back home. Therefore, the number of potential migrants can only increase today.

We find that China has never passed the Lewisian turning point. Indeed, we find that China is moving away from the turning point, primarily because agriculture has become more mechanised and squeezed out labour.

According to research published in the Monthly Labour Review of the US Bureau of Labour Statistics in April 2009, compensation of Chinese manufacturing workers was only $0.81 per hour in 2006—just 2.7% of comparable costs in the US, 3.4% of those in Japan, and 2.2% of compensation rates in Europe.

While these figures are now out of date by nearly four years, they underscore the magnitude of the gap between China and the developed world—and how difficult it would be to close that gap even under the most excessive of Chinese wage inflation scenarios.