Chinese low wages and the global recession
One of the less well-reported causes of the global recession is low wages for workers in countries like the US, Germany and China. But it is one side of the coin, alongside the regulatory failures in the finance sector. David Dollar, the wonderfully named Director of the World Bank’s China mission, is reported in the Independent as saying that:
“If an economy is producing primarily for export, it tends to pay its workers as little as possible. To generate the holy grail of sustained domestic demand, you have to pay your workers enough to buy the products they are producing.”
As Tim Page has written in this blog, a similar issue afflicts the German economy. Although wages in Germany are obviously far higher than in China, they were kept down to promote exports despite productivity growth that should have been shared more equally.
But the real source of the economic crisis was low pay in the US which meant that formerly middle class US workers were forced to borrow to pay for housing and the consumption that kept the world economy on the road, without the means to pay those loans back.
One of the reasons why we can’t go back to business as usual is that wages need to be increased around the globe – in the US, in China, in Germany and everywhere else (including here).