The NYT reports that strong demand is causing wages to rise rapidly in China. While the article describes this as a "labor shortage," this is actually a normal process in a growing economy. Workers move from less productive sectors to more productive sectors. Firms that cannot afford to pay the market wage go out of business. At the end of the article, the NYT notes that China may revalue the yuan as one mechanism for offsetting the inflation caused by the rise in wages. It then cites Jing Ulrich, the chairwoman of China equities and commodities at J. P. Morgan: "Letting wages rise benefits workers, ... letting the currency rise benefits currency speculators." Actually, workers would benefit from a rise in the yuan also, since they would be able to buy imported goods at lower prices. However, letting the currency rise would make J.P. Morgan a relatively weaker actor in China since most of its assets are in dollars. These dollars would be worth less in China if the yuan rose in value.
--Dean Baker
