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Tipping Point for Labor

Chinese factory floor

Growth in wages for laborers in China, but worse news for skilled and unskilled workers here.

Paul Krugman recently wrote about the existence of a possible tipping point for labor in China in his column “Hitting China’s Wall“. Is there a similar issue of a tipping point for high skilled labor (H-1B visas) in the current US economy? Paul Krugman writes:

Now, however, China has hit the “Lewis point” — to put it crudely, it’s running out of surplus peasants.

He writes about how a vast supply of cheap labor from the Chinese countryside enabled rapid growth of the Chinese economy especially in big cities. An important feature of this economic growth has been a large supply of cheap labor so wages remained low and money (investment) “simply stays bottled up in businesses.”

Is the US high skill labor market moving in the reverse direction? Claims of a shortage of high skilled labor are always suspect, but wages and salaries were higher during the Dot-com bubble. “High skilled” usually means those trained in science, technology, engineering, and mathematics (STEM), from skilled trades to BS, MS, PhD.  The supply of H-1B visas continues to increase even though wages and salaries for high skilled workers remain mostly constant, or declining. The Immigration Reform Bill from the US Senate allows H-1B visas to increase by 3X or more.

The “Lewis point” mentioned by Paul Krugman is a point when supply of cheap labor tightens and labor gains more bargaining power, leading to higher wages. In China, the market for construction and factory labor may be tightening “Wages are rising; finally, ordinary Chinese are starting to share in the fruits of growth.” The high skilled labor market rarely involves unions or other strong bargaining units. So, an increased supply of high skilled labor further strengthens the power of corporations in any bargaining with US STEM workers, a reversed direction for what may be happening to low skill workers in China.

One difference is that in China the cheap labor leads to economic growth because “Some of that income flows to a politically connected elite; but much of it simply stays bottled up in businesses, many of them state-owned enterprises. ” We know that US corporations are not investing in research, development, or even in plant construction, unlike China and other countries, and most of the money remains with the “politicially connected elite” such as Wall Street.

Paul Krugman starts his article by describing the lack of transparency of Chinese economic statistics. It is difficult to produce good analyses when the numbers are unreliable. Funny though, US statistics on the high skilled labor market are also unreliable, and here. For example, corporations are ever more creative on avoiding US talent so they can claim a “shortage.” Much of the national discussion is about issues of hiring, while employers fire people “at will” to make it easier to dump older US workers and select cheaper H-1B workers.

I really liked the words by President Obama recently and by US Senators Patty Murray, Amy Klobuchar, and Tammy Baldwin. They speak about college students, the middle class, and growing the economy. It’s their votes I don’t like and the lack of accountability for Wall Street and other corporations. They champion budget austerity with glee.  Their immigration reform paints any opposition to H-1B visas as intolerant of brown people. They remind me of BP commercials on PBS about all the good things BP is doing to help the people of Louisiana and the Gulf coast, ignoring their role in the oil spill.

Photo by Robert Scoble released under a Creative Commons license.

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