The Reductio ad Absurdum of the Cheap Labor Obsession

Having expended much energy explaining why importing cheap labor is so good for America, The New York Times now applies the same "logic" to China, in what Dean Baker calls "one of the most convoluted articles yet on demographics:"

As China Ages, a Shortage of Cheap Labor Looms

The world's most populous nation, which has built its economic strength on seemingly endless supplies of cheap labor, China may soon face manpower shortages....

Demographers also expect strains on the household registration system, which restricts internal migration. The system prevents young workers from migrating to urban areas to relieve labor shortages, but officials fear that abolishing it could release a flood of humanity that would swamp the cities.

As workers become scarcer and more expensive in the increasingly affluent cities along China's eastern seaboard, the country will face growing economic pressures to move out of assembly work and other labor-intensive manufacturing, which will be taken up by poorer economies in Asia and beyond, and into service and information-based industries.

The horror, the horror!

First, at present China has, what, 400 or 500 million people in what you could call the modern economy of factories, which leaves another 800 or 900 million people knee deep in rice paddies and the like, doing the same jobs in roughly the same ways as their great-grandparents. China has so much under-utilized labor that it has "internal migration" controls to keep 'em down on the farm. Obviously, for decades to come, the solution to any labor "shortage" in the booming coastal regions is to let more inland farmers move to where the jobs are.

Second, in the long run, China will likely follow Singapore in making a transition from factory work to "service and information-based industries," which, if you are Chinese, is a good thing: white collar jobs are, on the whole, nicer than blue collar jobs.

Baker writes:

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?

My published articles are archived at iSteve.com -- Steve Sailer