Does China Still Have a Labor Cost Advantage?

Abstract

In recent years wages in China have been rising and the yuan has appreciated, potentially eroding China's cost advantage in manufactures. This paper explores the evolution of China's relative unit labor costs in manufacturing over 1998 . Between 1998 China's unit labor costs fell, but since 2003 they have increased both absolutely and relative to US unit labor costs. Much of the rise in China's relative unit labor costs can be traced to a real appreciation of the yuan against the dollar. Despite the recent rise, China's unit labor costs remain low relative to those in most other countries.

Effects of Cost Factors on National Manufacturing Based on Global Perspectives

“…Drawing on the literature and corporate research, we divided our study into the following six parts (Sirkin et al 2014;James and Movshuk 2004;Ceglowski and Golub 2011;Bhanawat 2010). The first is the labor costs.…”

“…Result finds that labor productivity and unit labor cost has great influence on manufacturing development. Other researchers' studies have only focus on the impact on manufacturing from a single cost factor, such as Ceglowski and Golub (2011), (Ceglowski and Golub 2007) analyzed labor cost of manufacturing of China, Bhanawat (2010) and Chisik (Chisik et al 2014) analyzed the influence of raw material cost on manufacturing. Although they have studied and analyzed multiple cost factors, the cost factor is not comprehensive and has not analyzed the impact of cost factors on manufacturing from both scale and levels.…”

“…The rapid rising of cost is the disadvantage of manufacturing in China, some reasons can be draw from research. The growth rate of manufacturing main business income slowdown but the growth of cost is faster than income growth, thus overall manufacturing cost competitiveness is declining-manufacturing profit growth has fallen sharply, the decline of the manufacturing enterprise profitability increases the cost predicament-labor wages are rapidly rising, its growth is greater than the business income of manufacturing enterprises (Ceglowski and Golub 2011 (2011), (Ceglowski and Golub 2007) analyzed labor cost of manufacturing of China, Bhanawat (2010) and Chisik (Chisik et al 2014) analyzed the influence of raw material cost on manufacturing. Although they have studied and analyzed multiple cost factors, the cost factor is not comprehensive and has not analyzed the impact of cost factors on manufacturing from both scale and levels.…”

Functional Upgrading in China's Export Processing Sector

“…The country's comparative advantage in low-skilled manufacturing has been gradually eroded by rising labor costs, especially in the coastal provinces, and by currency appreciation (Ceglowski and Golub, 2012). If exports are to contribute to future growth, it is believed that export processing firms in China will have to move up the value chain and specialize in more capital-and skillintensive activities (Lin and Chang, 2009).…”

Wage Determination in China During the Reform Period

“…Yang, Chen and Monarch (2010) conclude that China's manufacturing wage has already converged to that of Asian emerging markets, but that China still enjoys enormous labor cost advantages over its neighboring developed economies. 3 Ceglowski and Golub (2011) ask if China still has a labor cost advantage and conclude that China's ULC have been rising since 2003 but remain low relative to those in most other countries. Depending on data source, in purchasing power parity terms, China's manufacturing ULC were 33 percent of U.S. ULC in 2009 or 68 percent in 2008.…”