Compensation and Productivity in China and the United States

A blog about business and economics.
Sept. 24 2012 10:15 AM

Compensation and Productivity in China and the United States

Corey Robin asks on Twitter why I was making a big deal out of the gap between wages in Chinese factories and the productivity of Chinese factory workers when there's a similar divergence between economy-wide productivity and economy-wide wages in the United States and United Kingdom.

The best glance at the difference is offered by this great summary table from Lawrence Mishel's "Wedges Between Productivity and Median Compensation Growth" table:


What's happening in the Chinese Industrial Revolution is very similar to what you saw during the Industrial Revolution in the West. On one hand, you have farmers engaged in the not very lucrative pursuit of farming. On the other hand, you have factories full of splendid machines. A worker equipped with machines can produce drastically more value than a similarly skilled farmer. Consequently, the owners of the machines will offer workers a modest wage premium over farm earnings to induce people to come to the cities and toil in the factories. But this modest wage premium is but a fraction of the worker's increased productivity. You could demand more, but it would be easy enough to fire you and replace you with some other farmer. The result is windfall profits for the owners of capital—profits that Chinese workers are trying to claim for themselves.

If you look at Mishel's table, you see that although there has been a decline in the labor share of national income (and not unrelated, there's been labor unrest just not at Chinese levels), this is not the biggest share of the story.

A more important cause has been the divergence between consumer and output prices. In other words, as an economy we've gotten a lot better at making business equipment (i.e., computers) and haven't gotten much better at making consumer goods (i.e., health care). The labor share of income question—which is a huge deal in China, where private consumption is less than half of GDP—has been much less central over the past 35 years in the United States, so we've seen different dynamics. On the other hand, as you see in the table, the labor share question looms much larger in the past decade than in the period as a whole. In China, meanwhile, wages have been rising. So conditions are, to an extent, converging, and not by coincidence—U.S. workers have increasingly been thrown into competition with the very same Chinese peasants with immiserating consequences. In the 1990s, policymakers delivered on full employment so a rising tide lifted the majority of boats, but in the aughts they haven't, so it hasn't.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.



The Ebola Story

How our minds build narratives out of disaster.

The Budget Disaster That Completely Sabotaged the WHO’s Response to Ebola

PowerPoint Is the Worst, and Now It’s the Latest Way to Hack Into Your Computer

The Shooting Tragedies That Forged Canada’s Gun Politics

A Highly Unscientific Ranking of Crazy-Old German Beers


Welcome to 13th Grade!

Some high schools are offering a fifth year. That’s a great idea.


The Actual World

“Mount Thoreau” and the naming of things in the wilderness.

Want Kids to Delay Sex? Let Planned Parenthood Teach Them Sex Ed.

Would You Trust Walmart to Provide Your Health Care? (You Should.)

  News & Politics
Oct. 22 2014 9:42 PM Landslide Landrieu Can the Louisiana Democrat use the powers of incumbency to save herself one more time?
Continuously Operating
Oct. 22 2014 2:38 PM Crack Open an Old One A highly unscientific evaluation of Germany’s oldest breweries.
Gentleman Scholar
Oct. 22 2014 5:54 PM May I Offer to Sharpen My Friends’ Knives? Or would that be rude?
  Double X
The XX Factor
Oct. 22 2014 4:27 PM Three Ways Your Text Messages Change After You Get Married
  Slate Plus
Tv Club
Oct. 22 2014 5:27 PM The Slate Walking Dead Podcast A spoiler-filled discussion of Episodes 1 and 2.
Oct. 22 2014 11:54 PM The Actual World “Mount Thoreau” and the naming of things in the wilderness.
Future Tense
Oct. 22 2014 5:33 PM One More Reason Not to Use PowerPoint: It’s The Gateway for a Serious Windows Vulnerability
  Health & Science
Wild Things
Oct. 22 2014 2:42 PM Orcas, Via Drone, for the First Time Ever
Sports Nut
Oct. 20 2014 5:09 PM Keepaway, on Three. Ready—Break! On his record-breaking touchdown pass, Peyton Manning couldn’t even leave the celebration to chance.