For years, Americans have complained that China's rock-bottom wages have forced U.S. companies to send jobs there. Factories here, which must pay U.S. wages and benefits, couldn't compete against China's 40-cents-an-hour average. Optimists argued that someday the wage gap with China would narrow, just as the one with Japan did.
Recent reports of increased labor unrest in China -- along with successful strikes there, which have resulted in some large pay increases -- have led to musings that cheap labor in China soon might be a thing of the past. Prosperity and shifting demographics -- a shortage of young workers, along with an appetite for material goods -- are also sending wages up sharply.
There's no doubt Chinese workers have begun garnering exceptional pay raises. Over the past two months, Honda Motor Co. plants in China have granted employees a 25 percent boost in pay and benefits. Foxconn, a Taiwanese electronics firm, has raised its wages in Shenzhen. So has TPV Technology Ltd., which makes computer displays.
Moreover, the virus seems to be contagious. Strikes are increasing. Many companies are in negotiations with their workers. And in many provinces, local governments are raising minimum wages. If labor costs continue to rise, China soon could become less competitive. Would "lost jobs" return to the United States?
Not very likely, says Daniel Rosen, a former White House Asia specialist who now is a China-watcher at the Rhodium Group, LLC, a New York-based consulting group. First, as Rosen and other analysts note, the wage increases are spotty, mainly involving large foreign firms such as Honda and Toyota. Wages for most Chinese workers haven't been affected.
Second, although the pay raises seem hefty in percentage terms, actual wage levels in China still are so low that it's going to take several more years before they even begin to approach U.S. standards. And studies show that for some products, such as electronics items, labor costs represent only a small part of the prices that companies charge.
If China does become uncompetitive in goods where low wages do matter, the jobs that it loses won't go back to the United States, Rosen and other economists say. Instead, they'll most likely migrate to Vietnam, Indonesia and India, where wages already are lower. Indeed, that process already has begun, albeit on a very small scale.
Wages have been rising in China for decades, says Albert Keidel, a former World Bank China specialist who has been watching that economy for 25 years. The Economist Intelligence Unit estimates that average labor costs per hour -- wages and benefits -- were $1.93 in 2009, up from 77 cents an hour in 2003 and 35 cents an hour in 1995.
"A few high-profile incidents does not indicate a broad labor-supply tightening," says Derek Scissors, a Heritage Foundation China specialist. "There have been plenty of previous outbreaks of labor unrest. This cycle has just gotten more attention."
To be sure, what makes the current wage surge somewhat more credible are the economic and demographic factors that seem to be sparking it. Prosperity has given those who live in China's coastal region -- Beijing and Shanghai, for example -- a thirst for more material things, such as houses and cars, both of which require fatter paychecks.
Just as important is China's famous one-child policy, which became effective in 1979; it is beginning to produce a shortage of workers in the important under-30 age bracket, who are the most skilled and most flexible. That could become critical as the economy expands, but the government's new infrastructure-building plan might ease that pressure.
Even if the wage gap continues to narrow over the next few years, the impact will be mixed. More prosperous Chinese workers are likely to buy more goods from abroad. That would help reduce China's global trade surplus and America's outsized trade deficit --bolstering the impact of a stronger yuan, if China follows through on last week's promise.
In turn, between the currency changes and the narrowing of the wage gap, the goods Americans import from China no longer would be quite the bargains they have been -- unless productivity in China increases enough to offset the impact of the wage hikes on labor costs. Hefty productivity gains have helped keep labor costs in China down in previous years.
That's just what economists and government policymakers mean when they talk about the need for a "rebalancing" of the U.S.-Chinese trade problem. Their prescription is for America to reduce import-buying and save more, while China strengthens domestic demand and buys more from abroad.
But Nicholas Lardy, China specialist at the Peterson Institute for International Economics in Washington, says it still isn't clear whether the current surge in wage increases will broaden and accelerate, or whether the increases ultimately will be confined to a small group of companies. "At this point, we don't know for sure," Lardy says.
So, while the recent raft of wage increases might be a step in the right direction, the consensus is they're unlikely to reduce the huge trade imbalance between the two countries -- or to calm trade frictions -- anytime soon. And they definitely won't bring back those "lost" U.S. jobs.