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Not exactly, minimum wage laws aren't actually market forces and I think two things are likely a) further inflation in essential goods, seeing how China already

Not exactly, minimum wage laws aren't actually market forces and I think two things are likely a) further inflation in essential goods, seeing how China already has inflation problems this is probably a response to that but will only add fuel to the fire b) fewer jobs, especially considering the part of their economy based on construction - and that bubble is bursting ATM. China has to compete with India, the rest of Asia, and automation on top of that. This doesn't look like it's going to end well.

_delirium 15y ago
They may or may not come out of it on top, but China's government does have some pretty solid technocrats running the numbers when they do these sorts of things. One guess is that they're worried that without the lower-end workers getting somewhat more money, there will be unrest that the government will have to do something about, for example by subsidizing housing if a typical worker in the area can't afford housing on the minimum-wage salary. If that were the case, this would be basically a way of internalizing the externality--- baking the social-unrest-reduction fee into the wages, rather than using taxes (on the same companies) to spend out of a separate pot for welfare.
- moonchrome 15y ago
  Chinese "technocrats" created probably the largest real-estate bubble yet by focusing on short term GDP growth numbers. Look up china ghost cities. People bought in to these as retirement/savings to avoid their constant inflation (which is increasing). They are in a situation where they can't inflate that bubble anymore because the inflation would get out of hand, and are willing to risk economic downturn to slow it down (that should tell you how serious it is).
  - wisty 15y ago
    Local governments make a lot of money (both formal revenue and informal bribes) off real estate development. The states / cities can't balance the budget without selling housing plots to developers. And the banks have low interest, while inflation is insane (due to both government monetary policy, and the good inflation of wage growth - both of which encourage development at the cost of encouraging bubbles). Then there's the cultural preference for boys and the one child policy leading to more boys than girls, so the girls only want to marry boys with houses, encouraging parents to buy a house for their son. On the other hand, China's deposit requirements for houses are draconian. Think 40% down. And the national government has been screaming bloody murder at house prices for quite some time, trying to ram all sorts of measures through to control house prices. Also, some of the ghost cities are kind of fictitious. I know one which was built on edge of a growing city, which rapidly filled up. There were some more developments in cheaper locations that looked a little iffy, but the one on the international news sites wasn't really a ghost city. What they really need to do is widen their tax base. Income taxes are a joke, because people lie on their tax returns. Taxing the sale of houses creates perverse incentives. One option (which fits in well with their Marxism and focus on productivity) is to tax land. That would keep house prices down, and create a fair tax base - no more millionaires living in mansions paying no tax because they have better accountants. They also need to reform government spending, and make the local governments more honest, but that's easier said than done - they are already executing bad eggs left right and center.
    - moonchrome 15y ago
      >On the other hand, China's deposit requirements for houses are draconian. Think 40% down. Think about that, it's even worse. In the US if your mortgage goes bust your bank takes more loss than in China where it's the home owner. And the home owners were regular middle class people trying to save their money from inflation AFAIK. Now it's likely to lose >30% value overnight because of the bubble. They had real-estate prices comparable to Europe and US with income nowhere near that so the IMO bottom is very deep. You don't think that's going to cause unrest ? There are already protests about this. Add to that protests about inflation and other social problems China faces. I don't think it's going to end well, and that's going to have huge implications for the world economy. And potential unrest are just going to accelerate flight of capital caused by increasing production costs.
- yummyfajitas 15y ago
  If that were the case, this would be basically a way of internalizing the externality There is no externality here. I pay a worker a small amount of money, he performs labor for me. Can you point me to a third party that is harmed? If not, there is no externality to the employment transaction.
  - _delirium 15y ago
    Social unrest is an externality that harms third parties; heck, social unrest (e.g. a new factory bringing increased crime) is one of the classic externalities, along with pollution. The government can of course choose to bear the cost separately, dealing with social unrest via some mixture of policing / welfare state / propaganda, paid for out of normal tax money, but it isn't free. Which approach is best depends partly on the elasticity in the labor market. China is implicitly betting that demand for Chinese labor is not very elastic, at least if we're talking about wage hikes that aren't orders-of-magnitude, so they can extract some extra money for low-paid workers via a minimum wage, thereby reducing the burden of the government having to do something about those workers separately. Although it's also quite possible, as one of the other replies suggests, that this has more to do with economic policy, e.g. trying to slow down an overheating economy.
    - yummyfajitas 15y ago
      Crime is a classic externality, but it is a separate transaction from paying workers. If I rob you, that's a transaction between me and myself - the third party harmed is you. That's why forcing criminals to pay for their bad acts is generally considered a good economic policy. Further, even supposing paying workers a low wage intrinsically causes them to commit crimes, it's still not clear that this is an externality created by the employer. Would the (non)-worker commit fewer crimes if they had no job at all?
- kokey 15y ago
  From the analysts I've been listening to from the clothing retail industry in Europe, it seems like China still have plenty of room for cheap labour just further inland and along the coast. Minimum wage laws will improve productivity in the more developed areas, even though it could be painful for them to adopt and innovate but it seems to not have been a disaster in the West. That said, this is also giving opportunities to India and Vietnam.

_delirium 15y ago

They may or may not come out of it on top, but China's government does have some pretty solid technocrats running the numbers when they do these sorts of things. One guess is that they're worried that without the lower-end workers getting somewhat more money, there will be unrest that the government will have to do something about, for example by subsidizing housing if a typical worker in the area can't afford housing on the minimum-wage salary. If that were the case, this would be basically a way of internalizing the externality--- baking the social-unrest-reduction fee into the wages, rather than using taxes (on the same companies) to spend out of a separate pot for welfare.

moonchrome 15y ago
Chinese "technocrats" created probably the largest real-estate bubble yet by focusing on short term GDP growth numbers. Look up china ghost cities. People bought in to these as retirement/savings to avoid their constant inflation (which is increasing). They are in a situation where they can't inflate that bubble anymore because the inflation would get out of hand, and are willing to risk economic downturn to slow it down (that should tell you how serious it is).
- wisty 15y ago
  Local governments make a lot of money (both formal revenue and informal bribes) off real estate development. The states / cities can't balance the budget without selling housing plots to developers. And the banks have low interest, while inflation is insane (due to both government monetary policy, and the good inflation of wage growth - both of which encourage development at the cost of encouraging bubbles). Then there's the cultural preference for boys and the one child policy leading to more boys than girls, so the girls only want to marry boys with houses, encouraging parents to buy a house for their son. On the other hand, China's deposit requirements for houses are draconian. Think 40% down. And the national government has been screaming bloody murder at house prices for quite some time, trying to ram all sorts of measures through to control house prices. Also, some of the ghost cities are kind of fictitious. I know one which was built on edge of a growing city, which rapidly filled up. There were some more developments in cheaper locations that looked a little iffy, but the one on the international news sites wasn't really a ghost city. What they really need to do is widen their tax base. Income taxes are a joke, because people lie on their tax returns. Taxing the sale of houses creates perverse incentives. One option (which fits in well with their Marxism and focus on productivity) is to tax land. That would keep house prices down, and create a fair tax base - no more millionaires living in mansions paying no tax because they have better accountants. They also need to reform government spending, and make the local governments more honest, but that's easier said than done - they are already executing bad eggs left right and center.
  - moonchrome 15y ago
    >On the other hand, China's deposit requirements for houses are draconian. Think 40% down. Think about that, it's even worse. In the US if your mortgage goes bust your bank takes more loss than in China where it's the home owner. And the home owners were regular middle class people trying to save their money from inflation AFAIK. Now it's likely to lose >30% value overnight because of the bubble. They had real-estate prices comparable to Europe and US with income nowhere near that so the IMO bottom is very deep. You don't think that's going to cause unrest ? There are already protests about this. Add to that protests about inflation and other social problems China faces. I don't think it's going to end well, and that's going to have huge implications for the world economy. And potential unrest are just going to accelerate flight of capital caused by increasing production costs.
yummyfajitas 15y ago
If that were the case, this would be basically a way of internalizing the externality There is no externality here. I pay a worker a small amount of money, he performs labor for me. Can you point me to a third party that is harmed? If not, there is no externality to the employment transaction.
- _delirium 15y ago
  Social unrest is an externality that harms third parties; heck, social unrest (e.g. a new factory bringing increased crime) is one of the classic externalities, along with pollution. The government can of course choose to bear the cost separately, dealing with social unrest via some mixture of policing / welfare state / propaganda, paid for out of normal tax money, but it isn't free. Which approach is best depends partly on the elasticity in the labor market. China is implicitly betting that demand for Chinese labor is not very elastic, at least if we're talking about wage hikes that aren't orders-of-magnitude, so they can extract some extra money for low-paid workers via a minimum wage, thereby reducing the burden of the government having to do something about those workers separately. Although it's also quite possible, as one of the other replies suggests, that this has more to do with economic policy, e.g. trying to slow down an overheating economy.
  - yummyfajitas 15y ago
    Crime is a classic externality, but it is a separate transaction from paying workers. If I rob you, that's a transaction between me and myself - the third party harmed is you. That's why forcing criminals to pay for their bad acts is generally considered a good economic policy. Further, even supposing paying workers a low wage intrinsically causes them to commit crimes, it's still not clear that this is an externality created by the employer. Would the (non)-worker commit fewer crimes if they had no job at all?
kokey 15y ago
From the analysts I've been listening to from the clothing retail industry in Europe, it seems like China still have plenty of room for cheap labour just further inland and along the coast. Minimum wage laws will improve productivity in the more developed areas, even though it could be painful for them to adopt and innovate but it seems to not have been a disaster in the West. That said, this is also giving opportunities to India and Vietnam.