I don't think that's necessarily an obvious outcome. Right now cheap labor is taking away incentives to automate. Some things can't be automated economically, but given broad incentives across industry there will be a reorienting towards automation. For instance mobile phones components would be designed to be assembled without human intervention.
Of course creating the automation requires labor but much less and it is more one-off.
I don't think so. Lots of stuff we consume in the west is made in China. Chinese wages have gone up like crazy in the last few decades. (Not that they are particularly high now, they just used to be sooo low.) Yet, stuff hasn't gotten more expensive for us.
The causality runs the other way:
Wages go up when productivity goes up. Productivity going up in China means they can make more with less work.
So if anything, the proportion of the price in our cheap imported stuff that goes towards labour costs tends to fall as Chinese labour gets more productive.
That's because of several factors -
1. China has a massive massive population and the majority is still relatively poor. This is still lots of untapped labour available at low cost.
2. The skilled workers that have been trained in the past 3 decades is allowing China to move up in the value chain. They are capturing more of the profits because of this. Look at how many Chinese tech brands establishing significant presence in western markets. They are able to offer lower prices as they are mostly vertically integrated and labour costs of even the skilled positions are generally lower in China (where they centralise a lot of their functions) compared to the west.
3. And at the same time, countries with even cheaper labour are competing with Chinese producers on the low end. You see this particularly with things like clothes and shoes which are labour intensive but relatively low tech.
Well, at low cost compared to western labour, but at high cost compared to recent Chinese past.
(We would need to introduce some actual numbers in the discussion to say anything more precise.)
> They are capturing more of the profits because of this.
Just to clarify: things are still becoming cheaper for consumers around the world.
Overall the pie has grown. China might be getting relatively more of the pie, but the rest of the world also got more in absolute terms.
> 3. And at the same time, countries with even cheaper labour are competing with Chinese producers on the low end. You see this particularly with things like clothes and shoes which are labour intensive but relatively low tech.
Yes. But yet, Chinese wages are going up.
Of course, there has been some government intervention on all sides, but companies are also willing to pay a bit of a premium to secure a second supplier.
1. Prices of goods and price of labour do not correlate. As in decrease/increase in wages do not lead to a change in price of goods. That feels counterintuitive, yet if examined closely you see that price of something is always at the point of maximum profit. So increase in price will lead to less sales and less profit regardless of labour cost.
To give you an example - you run a SaaS business with annual $100 price for your most popular plan. You have profits enough to pay you and a couple of developers a salary. Your competitor has similar offering with the same price. Your developers demand a pay increase of 15% - which will put you at a loss. What options are for you without magically getting more market share, getting outside investment etc:
A. Cave-in to the wage increase and operate at a loss. B. Increase price of your most popular plan which would lead to less profit and you will have to operate at even greater loss. C. Somehow fire developers and find new ones.
This leads to the conclusion that wages and profit margins have inverse causal relationship. Price of goods is determined by supply/demand and non-market forces (regulation etc).
2. Price of labour has no causal relationship with productivity. Price of labour does not have any specific market differences from any other commodity. If the demand for labour is high and supply is low (think software developers) and no monopsony (one buyer market) then the price will go up. I live in Eastern Europe which became a major outsourcing hub in last 15 years or so. Salaries for devs have gone up at least 1000% (number of zeroes is correct) compared to time before outsourcing boom.
If there is a monopsony - there is no competition for labour only one company hires people - then the wage would be as low as it can get regardless of productivity. Big employers like Amazon and Walmart can perform crazy fits of neo-taylorism without any kind of wage increase - because they can.
If supply of labour increases - then wages will fall, regardless of productivity. The whole reason behind offshoring, outsourcing.
3. Why wages can rise in China:
A. A lot of what they do right now demands a higher-skilled workforce which is not in abundance. Low in supply != high productivity.
B. China is not only a big factory that supplies goods for the West. As profits are invested into institutions - new opportunities appear. Chinese goods were seen as cheap copies 30 years ago, now it is often price/quality competitive products such Oneplus phones, some of the Chinese cars or even market leaders such as DJI drones and gimbals. All of that requires skilled engineers, designers, marketing people.
C. Non-market forces. CCP can pressure business owners to pay better wages or to better comply to labour standards. I'm not sure if that's happening to be honest but that's possible.
As a sidenote: If you want to know more about the disconnect between wages and productivity you can read David Ricardo's magnum opus On the Principles of Political Economy and Taxation from 1817, it is not an easy read yet I think in many ways it yet be refuted (in good faith).
Even just taking your example, Walmart is competition for Amazon for unskilled labour.
But you are right that in order to get a tight connection between productivity and labour, there needs to be competition in the labour market. (Actual competition is best, but even the threat of potential competition is better than nothing.)
Regarding Amazon and Walmart Even though it might be not a real monopsony in literal sense, it could be an effective monopsony where Amazon and Walmart pay what they want essentially (due to the big difference in bargaining power between employees and employers). I'm not in US so it is not so easy for me to get context fully - but is there a scarcity in low-skilled labour? I thought that precisely that there is a lot of people who decide between shitty job and homelessness there is no real competition there.
My whole point is that looking at labour as a commodity which is being sold and bought on the market gives a much clearer view on issues like unions, anti-trust, monopoly.
The link between wages and productivity goes via competition:
Eg assume your labour can make one employer x $/h (after taxes and equipment, cost of capital etc), and some other employer y $/h. Assume x > y, then the first employer better bid at least y $/h for your services, otherwise the other guy can make a profit by poaching you.
> Also there is political implication of looking at people who are poorly paid and saying something like "They should increase their skill-level to get out of poverty" which I think misses the mark totally.
Well, if anything, the truth is often politically inconvenient.
Alas, the problem is that many people can't _just_ increase their productivity like that.
(But as a society, we could try to help them. In general, on the level of a society, no matter how you arrange economics, even in a socialist paradise: productivity is king. Society as a whole can not consume more in the long run than they produce as a whole.)
> Regarding Amazon and Walmart Even though it might be not a real monopsony in literal sense, it could be an effective monopsony where Amazon and Walmart pay what they want essentially (due to the big difference in bargaining power between employees and employers).
I have no clue what this bargaining power is supposed to be?
Amazon is competing with Walmart is competing with McDonalds is competing with Uber etc for low skilled labour. No need to bring any nebulous 'bargaining power' into the discussion?
> I thought that precisely that there is a lot of people who decide between shitty job and homelessness there is no real competition there.
The decision is between multiple shitty jobs.
(Compared to what our descendants in a 100 years will expect, all our jobs are shitty. Compared to what was available a 100 years ago for our ancestors, almost all our jobs and perks are crazy awesome: people working at Walmart can afford smart phones.)
> My whole point is that looking at labour as a commodity which is being sold and bought on the market gives a much clearer view on issues like unions, anti-trust, monopoly.
Well, you are sort-of right. This perspective is enlightening.
Unions trying to monopolize labour is a bit of a problem, yes.
Anti-trust legislation is mostly used by entities who can afford expensive lawyers to keep the pesky competition at bay.
Monopsony ain't much of a problem in the market for low skilled labour in the US, especially for people willing to move. (And for monopsony not to be a problem we only need enough people being willing to move, not everyone. The margin matters.)
All businesses in the market raise their prices, except one, which keeps operating at a lower margin. It is easy to see what would happen next - the company that didn't raise prices makes much more than before and all competitors suffer losses.
What if businesses collaborate to raise prices all at once? That would be price fixing which is illegal.
So margins tend to become lower and lower over time. That leads to a very important problem - Tendency of the rate of profit to fall [0]
[0] - https://en.wikipedia.org/wiki/Tendency_of_the_rate_of_profit...
People are always up for more money. The question is, I guess, what they would be doing different if they got that raise or not. (Ie stay on or quit, or join one vs another company etc.)
The real question is how the business can mitigate rising salary (and lowering of margins) and whether there is relation between labour cost and price of goods.
We already know - with total certainty - the maximum number of 80-year-olds who will be alive in the year 2100. They’ve all already been born.
And yet, raw population count is crucial in "lifting people" to higher standards of living. It's about how dynamic an economy is, which is about momentum. An aging population is just not as dynamic...
The decline in population in the west wont see the same wealth shared by fewer people, but less wealth produced, a shrinking economy, and more and fiercer fights for the smaller pie.
To make this happen we will also need, obviously, technology advances and organizational innovation. But to get more people for doing that, I would rely more on taking knowledge people out from industries becoming less profitable (a normal economic thing; many people would agree that currently smart people are attracted economically to many questionable enterprises) and lifting the developing world (as its population growth is slowing) than, as I said, growing raw population count.
I'm assuming you don't mean that we absolutely need a pool of people willing to work for any wage due to fear of extreme poverty. I have a sneaking suspicion that this point might hide under the "we need more people for more ideas" argument in the article. But the reality shows that we don't need such a poverty pool for agriculture for a long time now (looking at the Western agricultural productivity) and we probably don't really need it for industrial production either. This is due to technological advances letting us produce more with less people.
The "too few ideas" claim is also weird. For you to contribute some ideas to the global economy, at the very least you need some access to capital, that currently most of the world doesn't have. Having good education and some freedom from spending all time and all your energy just to survive on subsistence level also helps. In production of ideas, lifting people everywhere to the Western middle class standard of living and mindset is far more important than raw population count. This would probably require bringing industrial labor wages to a more realistic level everywhere, also in poorer countries.
The whole system of relying on cheap labor in developing countries would have to change somewhat with decelerating population. The stuff in the West would be more expensive, although maybe with fewer workers wages couldn't be so stagnant. The model of buying materials and labor cheap somewhere and selling stuff highish to Western population would be harder to sustain, making many businesses less viable. Maybe this is especially scary for people that are heavily into capital.
This is my personal take and it's somewhat related to the post-Black Death phenomena in Europe that the article mentions. There's also "The Great Demographic Reversal" book where the authors apparently also predict rising inflation and take into account aging of the population (I've only watched an interview with one of the authors).