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Wage hikes in China shift the big picture

  |   Feb. 20, 2012 at 11:45 AM
BEIJING, Feb. 20 (UPI) -- Rising wages at Foxconn in China signify a step forward, but one that relies on the willingness of consumers to spend, economist David Autor said.

Over the weekend, Foxconn Technology, which is China's largest exporter and has 1.2 million people working in its factories, announced wage hikes of between 16 percent and 25 percent, media outlets reported.

The New York Times reported Monday that Foxconn is the equivalent of Walmart in China in terms of dictating policy. It is so large that other companies follow suit when it makes changes. Failure to do so risks falling victim to labor shortages.

The firm makes electronic gadgetry for the world's most recognizable brand names, such as Samsung, Apple, Nintendo, Sony, Dell and others.

"This is the way capitalism is supposed to work. As nations develop, wages rise and life theoretically gets better for everyone," said Autor, an economist at the Massachusetts Institute of Technology.

"But in China, for that change to be permanent, consumers have to be willing to bear the consequences. When people read about bad Chinese factories in the paper, they might have a moment of outrage. But then they go to Amazon and are as ruthless as ever about paying the lowest prices," he said.

In China, a government report said the labor shortage in coastal cities where factories are built are especially acute this year. As wages rise, workers who go back to their rural, inland homes for the Chinese New Year are more reluctant to return to their factory jobs.

It is no coincidence that Foxconn's raises, which lift wages to about $400 per month, were announced just after the New Year's holiday ended.

Pressure to give workers raises -- a move that came with new overtime limits -- also came from the international community after headlines of worker suicides in 2010 and a recent incident in which 150 Foxconn workers threatened mass suicide if conditions at their factory did not improve.

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