The Problem of Rising Wages in China

The Times had one of the most convoluted articles yet on demographics. Apparently, China's slowing population growth may lead to a shortage of cheap labor, no kidding the headline is "As China Ages, a Shortage of Cheap labor Looms."

It wasn't that long ago that I learned my economics, but back then this was THE POINT of economic development. Countries wanted to have more good paying jobs relative to the size of their population so that people would not be forced to take the bad paying jobs. I am not quite sure what theory of economic development the Times has where a lack of people in low-paying jobs is a problem. (Maybe we can make Times reporters do them.)

Just about everything else in the piece is equally incoherent. It gives us the warning of the rising ratio of retirees to workers. But let's toss in some arithmetic. China's per capita GDP is growing at more than 8 percent annually. This means that in a decade, per capita income will have more than doubled. Suppose the tax burden was raised by 10 percentage points to cover the higher ratio of retirees to workers, this would leave the average worker more than 80 percent better off (assuming that income growth is distributed in proportion to current income, a very big assumption). What is the problem?

The article even warns that raising the retirement age may not help because that would mean fewer jobs for young workers. (But, wasn't the problem supposed to be a shortage of young workers?)

The ratio of confusion to information in this article is extraordinary. It would be good if the reporter and/or the editor could give this issue some more serious thought.

--Dean Baker

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