The End of Cheap Chinese Labor

Abstract

In recent decades, cheap labor has played a central role in the Chinese growth model. However, wages are now rising in China, being significantly higher than those earned by workers in India and Indonesia in 2010. China’s wages also increased faster than productivity since the late 1990s, suggesting that Chinese labor is becoming more expensive in this sense as well. The increase in China’s wages is not confined to any sector. The main forces that are pushing wages up include the reforms in the late 1990s that re-established a flexible labor market in China, the decrease of the growth of China’s labor force; and the slow-down of China’s rural-to-urban migration.