Chinese Labor, Wages, and Productivity

by Don Boudreaux on May 12, 2009

in Trade, Work

Persons interested in understanding the economics of labor markets, and in particular how this economics sheds needed light on China's low wages, should read this informative and clear quotation from Martin Wolf – a quotation that I originally shared at the Cafe back in August 2006.

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{ 20 comments }

Pingry May 12, 2009 at 6:56 pm

Comparative advantage is determined by the opportunity costs of production, not the absolute costs of production, period.

Martin Brock May 12, 2009 at 8:56 pm

Opportunity costs are determined by constraints including forcible constraints imposed by states, like restraints on immigration. Since the cost of transporting labor fell by orders of magnitude in the 20th century, opportunities for Chinese labor are limited more by forcible restrictions on their migration than by opportunities in China.

John Dewey May 12, 2009 at 9:40 pm

martin brock: "Since the cost of transporting labor fell by orders of magnitude in the 20th century"

Please explain this, Martin. In real dollars, does it really cost "orders of magnitude" less to transport labor than it did 100 years ago? Or do you mean that transportation would require a smaller portion of one's income, given that real incomes have grown so much?

Chris May 13, 2009 at 4:04 am

I live in Australia, with a very large Vietnamese population based on refugee intake after 1975.
My sister in law went to uni with a Vietnamese girl, one of five sisters, they all became pharmacists, doctors, etc.
Their parents, originally "boat people" refugees, paid for all their educations, as well as the sprawling and well-appointed brick house they were all living in in the 90s, by sewing Levi jeans in their back shed, under conditions often called "sweatshop".
The girls used to said, that if any unionist had tried to "save" them from the "sweatshop", their parents would have attacked them with a meat cleaver.
They knew an opportunity when they saw one.

Martin Brock May 13, 2009 at 7:25 am

Please explain this, Martin. In real dollars, does it really cost "orders of magnitude" less to transport labor than it did 100 years ago?

Yes. Traveling from Chicago to Bejing a century ago required weeks. Since I couldn't work on route, the opportunity cost alone was huge. The price of transport itself was also much greater.

I hear of illegal Chinese migrants paying many thousands of dollars to spend days or weeks in the cargo hold of a ship. Even this price is much lower than a century ago, but the price is entirely a product of forcible constraints on migration. If they could travel legally, airline tickets sometimes go for a thousand and the trip lasts less than a day.

Or do you mean that transportation would require a smaller portion of one's income, given that real incomes have grown so much?

That too.

Martin Brock May 13, 2009 at 7:33 am

Their parents, originally "boat people" refugees, paid for all their educations, as well as the sprawling and well-appointed brick house they were all living in in the 90s, by sewing Levi jeans in their back shed, under conditions often called "sweatshop".

Since a few people can sew jeans in a small shed so profitably, I wonder why Levi has factories.

John Dewey May 13, 2009 at 9:54 am

Oh, Martin, I see, You were referring to the opportunity cost of transporting Martin Brock, not the opportunity cost of transporting an unskilled Chinese peasant. Since you can place whatever value you wish on the opportunity cost of transporting Martin Brock, you can, of course, prove anything you wish.

As for the Chinese peasants, I see now that you are referring to today's cost of transporting Chinese peasants illegally – in shipping containers. So I'd like to understand how that transport cost is "orders of magnitiude" less than illegal transport in the 19th century. Please enlighten me. I assume you have evidence of the real dollar cost of securing passage as a stowaway in the 19th century and in the 20th century.

Eric Hammer May 13, 2009 at 10:06 am

While I don't know that it is orders of magnitude less expensive to transport people today, it is certainly a good bit cheaper. To use the current example, flying from Bejing to Chicago instead of going by boat and train saves you weeks of time, but more importantly weeks of food and shelter, and costs of transporting the same. There is also the slight opportunity costs.

The issue I think is only partially restraints on immigration, however. Once immigrants arrive, they find it is illegal to work for less due to minimum wage laws, and sometimes better to just not work due to welfare laws. Our caring and concerned government has essentially forced low skill workers to price themselves out of the market.

John Dewey May 13, 2009 at 11:14 am

eric hammer: "While I don't know that it is orders of magnitude less expensive to transport people today, it is certainly a good bit cheaper."

How do you know that, Eric? Do you have figures to share?

It costs about $1300 to fly from Beijing to the U.S. today. I think that would be about $50-$65 in 1900 dollars.

Trans-Atlantic steerage in the late 19th century on screw-driven steamships was only about 3 pounds sterling. Not sure what the currency exchange rate was, or how much more a trans-Pacific trip may have been. But it doesn't seem likely it would have exceeded $50 in 1900 dollars. Or at least not by much.

As I understand it, cheaper berth passengers carried their own food along the trip. They would have paid for food whether on the ocean or back at home on land.

Coparing trans-oceanic travel costs of today and a century ago, the only real cost differences I see are the opportunity costs of the travel time. For Chinese peasants seeking jobs in America, I think that would be more than offset by the opportunity gain of moving to America.

John Dewey May 13, 2009 at 11:20 am
Martin Brock May 13, 2009 at 11:26 am

Oh, Martin, I see, You were referring to the opportunity cost of transporting Martin Brock, not the opportunity cost of transporting an unskilled Chinese peasant.

No. Chinese peasants do transport themselves in shipping containers as described, and they do so only because avenues available to me are closed to them by state policy. That's a fact you simply ignore.

Since you can place whatever value you wish on the opportunity cost of transporting Martin Brock, you can, of course, prove anything you wish.

I don't value the cost. Airlines value it. Ignoring reality with these facile diversions doesn't change it.

Martin Brock May 13, 2009 at 11:33 am

As for the Chinese peasants, I see now that you are referring to today's cost of transporting Chinese peasants illegally – in shipping containers. So I'd like to understand how that transport cost is "orders of magnitiude" less than illegal transport in the 19th century.

What a lot of incredible nonsense. My whole point is that the illegality of the transport is responsible for the particular mode of transport chosen by these people and thus is responsible for its cost. Much lower cost transport is available and is not chosen only because it is more easily policed. You need a visa to get on the plane.

Sure, the opportunity cost is high. It's high because statesmen raise it by threatening to shoot people.

Please enlighten me. I assume you have evidence of the real dollar cost of securing passage as a stowaway in the 19th century and in the 20th century.

No. You don't want evidence. You want to score cheap debating points with this silly, irrelevant diversion.

Martin Brock May 13, 2009 at 11:42 am

Trans-Atlantic steerage in the late 19th century on screw-driven steamships was only about 3 pounds sterling.

You ignore the cost of traveling from Chicago to the west coast. You pretend that transatlantic steerage is indistinguishable from transpacific steerage. You ignore the opportunity cost of spending weeks in transit. You pretend that bringing food along on the trip somehow makes the food cost free. Most significantly, you ignore the fact that modern travelers have other options forbidden only by state policy.

John Dewey May 13, 2009 at 12:45 pm

martin brock: "You ignore the cost of traveling from Chicago to the west coast."

No, Martin. I was referring to the cost of traveling from China to the U.S. I only quoted the Chicago flights because Eric used that example.

martin brock: "You pretend that bringing food along on the trip somehow makes the food cost free."

Not at all, Martin. My point was that the cost of food to sustain the traveler is the same whether he makes the trip in 3 weeks by steamer or waits 20 days and makes the trip in one day by airplane. He still has to pay for food for all 21 days. So food costs are not relevant.

Martin Brock: "You pretend that transatlantic steerage is indistinguishable from transpacific steerage."

No, I do not. But I do claim that they were not "orders of magnitude" different.

John Dewey May 13, 2009 at 12:54 pm

martin brock: "You don't want evidence. You want to score cheap debating points with this silly, irrelevant diversion."

If you find it a diversion, then perhaps you should not make statements you cannot support with facts:

Martin Brock: "Since the cost of transporting labor fell by orders of magnitude in the 20th century, opportunities for Chinese labor are limited more by forcible restrictions on their migration than by opportunities in China."

I'm convinced now that you had no prior knowledge of 19th century transport costs when you presented that statement as fact.

Martin Brock May 13, 2009 at 12:56 pm

No, Martin. I was referring to the cost of traveling from China to the U.S. I only quoted the Chicago flights because Eric used that example.

I used the example, and the cost you ignore is the cost of traveling from Chicago to the west coast a century ago. I was really thinking more of two centuries ago, before railroads, but the cost was still very great a century ago.

Not at all, Martin. My point was that the cost of food to sustain the traveler is the same whether he makes the trip in 3 weeks by steamer or waits 20 days and makes the trip in one day by airplane.

That's true.

No, I do not. But I do claim that they were not "orders of magnitude" different.

We're discussing travel to China, and you're quoting transatlantic costs, so you were before if you aren't now, but I'll stick with "orders of magnitude". I suppose a factor of two is an order of magnitude.

Martin Brock May 13, 2009 at 12:59 pm

I'm convinced now that you had no prior knowledge of 19th century transport costs when you presented that statement as fact.

I was aware of the time required to travel, and that's a cost, even if you don't address it. My point was and still is that more Chinese could fly if only they could get a visa.

Martin Brock May 13, 2009 at 1:03 pm

And you're also the one inserting peasants into the discussion. I never mentioned peasants until you did. Peasants would not be first in line to immigrate if the opportunity existed.

John Dewey May 13, 2009 at 2:16 pm

martin brock: "but I'll stick with "orders of magnitude". I suppose a factor of two is an order of magnitude."

Well, it helps to define one's terms when one chooses to use non-standard definitions.

The most common usage by far for the term order of magnitude is factors of ten. So an order of magnitude difference would mean that one is ten times as large or small as the other. Using the term "orders of magnitude implies more than one order of magnitude difference. The smallest whole number "orders of magnitude" would be 10 to the power 2, or 100.

Anyone reading your initial argument:

"Since the cost of transporting labor fell by orders of magnitude in the 20th century"

should conclude you meant the cost of transporting labor at the end of the 20th century was only 1/100, or one percent, of the cost at the beginning of that century.

You can improve the chance that someone might agree with your remarks if you use the common definitions of terms.

Martin Brock May 13, 2009 at 2:30 pm

Well, it helps to define one's terms when one chooses to use non-standard definitions.

According to your own link, my usage is standard, even if it is not most common.

"An order of magnitude is the class of scale or magnitude of any amount, where each class contains values of a fixed ratio to the class preceding it."

Factors of two fit this definition as well as factors of ten, even if ten is the most common factor one sees. I'm an IT guy, and factors of two are more common in my neck of the woods.

Anyone reading your initial argument: … should conclude …

You don't speak for anyone, even if you think you should.

You can improve the chance that someone might agree with your remarks if you use the common definitions of terms.

No. You aren't looking for agreement here, and nothing I say can escape your semantic nitpicking; however, if you want me to say that "many orders of magnitude" is hyperbolic, I'll say it just to please you.

The substance of my point stands undisputed.

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