(Mr. McKinnon is a professor at Stanford University and a senior fellow at the Stanford Institution for Economic Policy Research)
Recent Chinese labor strikes—particularly in the heartland of manufactured exports in Guangdong and the Pearl River Delta—have taken most observers by surprise. Labor shortages in and around Shanghai and the Beijing area are also widespread. Many local governments, particularly on the developed eastern seaboard, have increased minimum wages by 15% to 20% this year.
A wage explosion fed by labor militancy is obviously disconcerting to Beijing. But in the long term China's wage increases should reflect its remarkably high productivity growth in manufacturing. Higher wage growth would have two great advantages for China and for the rest of the world. First, Chinese wages would become closer to those in the more mature industrial countries, thus reducing protectionist pressures against imports from China. Second, higher wage settlements would reverse labor's declining share in China's national income. With a shift away from business profits—which have become exorbitantly high in the last several years—to greater household disposable income, consumption would naturally rise and reduce China's trade surplus.
