[lbo-talk] pay gap

Wojtek Sokolowski sokol at jhu.edu
Wed Dec 15 07:05:03 PST 2004


Michael:
>
> On Mon, 6 Dec 2004, Doug Henwood wrote:
>
> > According to Business Week, a BLS consultant has developed good data on
> > Chinese pay rates, which hadn't been available before. In dollar terms,
> > including fringe benefits, the average U.S. manufacturing worker earns
$21.11
> > an hour; the average Chinese worker, $0.64 (3% as much).
>
> Doesn't this make hash out of the central contention of mainstream
> economics, that wages are set in accordance with relative productivity?
> Can anyone seriously maintain that Chinese manufacturing workers are
1/33rd
> as productive as American ones?

Yes and no. The argument you are referring to is a bunch of hogwash only if you assume that (i) wages = labor costs and (ii) the social cost of reproducing labor is more or less constant across countries (i.e. consumption patterns are similar in US and China). Both assumptions are obviously false on their face. This whole cross-national wage comparison is a sham devised to legitimate wage cut policies of the US business - the notorious "we cannot compete" BS.

If we take into account the total labor cost to the companies - i.e. how much they spend not just on wages but on benefits, insurance, social security taxes, and social safety net in general - we may find that Chinese companies pay considerably more than 3% of what US companies pay. What is more, we should look into the share of the social cost of reproducing labor paid by the buyers of labor (i.e. companies) and compare it to the share paid by other institutional sectors (i.e. government, and the household sector) as well as non-market actors (i.e. activities outside the boundaries of production and thus not reflected in the national income accounts - the prime example is domestic labor done mainly by women).

The first exercise is relatively easy, the second one - very difficult. It is likely, however, that these two exercises work in opposite directions. Accounting for all forms of labor cost increases the share of social cost of labor reproduction borne by employers, while accounting for government social expenditures and non-market production (domestic work) decreases it. In substantive terms it means that the total social cost of Chinese labor may be much higher than wage comparison suggest, but that cost is distributed differently i.e. "subsidized" by unpaid domestic work.

Wojtek



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