“What the world lacks is willing customers, not willing workers.”
That statement in this week’s The Economist magazine may be one of the most insightful among all the worried economic chatter in the media these days. The magazine’s cover story this week covers the woes of the Chinese worker, no longer docile migrant laborers willing to make pennies. According to the magazine, Chinese wages have risen 17 percent over the last year alone. Moreover, “Chinese labor costs tripled in the decade after 1995, but output per worker quintupled.”
The article continued: “China’s economy relies too much on investment and too little on consumer spending…. Letting wages rise at the expense of profits would allow workers to enjoy more of the fruits of their labor.”
As workers fight for better pay, unions stateside, including the AFL-CIO, are cheering them on, and for good reason. As The Economist article stated, “Back-of-the-envelope calculations suggest that if Chinese consumption rose by, say, 20 percent and $25 billion of that were spent on American goods, it might create more than 200,000 American jobs, many of them in the manufacturing industries that fear China the most.”
Of course, this is only a beginning. As The Economist article states, though overall wages in China rose 17 percent, that puts the average take-home pay at $197 a month, or 1/20th of the average American worker’s.
U.S. manufacturers meanwhile seem to be ramping up their machine tool purchases. After historic lows in 2009, machine tool consumption is up 52.9 percent this year, according to the “U.S. Manufacturing Technology Consumption” report, a joint study of The Association for Manufacturing Technology and the American Machine Tool Distributors’ Association. Bloomberg also reported Bureau of Labor Statistics information that shows the capital-to-labor ratio rising. “When the ratio rises, it shows companies are spending more on labor-saving machinery than on workers,” the article states.
We’re now stuck in a kind of chicken-and-egg situation. We need high consumption, high worker productivity, and low unemployment. With automation investment on the rise, manufacturing already has high worker productivity. So few workers make so many high-quality products in so little time, and businesses aren’t going to hire more people with consumer demand being so shaky.
What we need now are new customers, and they’re hard to come by domestically when so many are out of work. Eventually exports may come to the rescue. It won’t happen overnight, but in the long run, the rising wage and buying power of the Chinese citizen may be our saving grace.