U.S./China High-Skilled Wage Gap Will Narrow

Here is a summary of an interesting report by the Manufacturers Alliance/MAPI on U.S./China wages.

According to the report, U.S. manufacturing industries with a high concentration of skilled labor should find the labor cost gap with China narrowing over the next decade, but China’s advantage in semi-skilled and low-skilled labor costs will continue as a fact of life in the global economy. I would add that ten years is a long time, and a lot can happen in a decade.

A Manufacturers Alliance/MAPI paper, The Labor Market Dynamic in Post-Reform China: History, Evidence, and Implications (ER-561e) offers historical perspective and a look into the future of the wage and labor force issues in the rapidly evolving Chinese economy.

Cliff Waldman, Manufacturers Alliance/MAPI Economist and report author, writes that the increasing importance of education in the Chinese labor market, in conjunction with the buildup of the technological infrastructure, as well as evidence of strong productivity growth, suggest that wages of skilled workers will increase at an accelerating rate throughout the next decade. Nationally, manufacturing wages in China more than doubled between 1993 and 2001 in nominal terms.

“A narrowing of the U.S.-China labor cost gap in industries that employ a relatively high degree of skilled labor will lessen the degree of import competition in those industries,” Waldman says, “and, in a development that will be favorable to the domestic manufacturing job base, it also will diminish the degree of production outsourcing to China from these industries.”

China, however, will maintain its huge advantage in semi-skilled and low-skilled labor costs as inefficient state-owned enterprises continue to shed workers and as the problems with urban absorption of migrant rural labor persists. Waldman predicts that this surplus supply of readily available and easily accessible lower-skilled workers will last for at least a generation.

The paper finds that overall wage growth in China should be strong enough to support moderate increases in consumer spending. The development of large consumer markets in China is a major boon for a struggling world economy, currently relying too heavily on the American consumer.

Waldman drew his conclusions from a number of sources, including scholarly articles, a wide variety of Chinese economic and demographic data series, and discussions with various experts.

Buy the report here.