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Why Are Foreign Wages so Low?

In: People

Submitted By mjtaliercio
Words 2220
Pages 9
Mark Taliercio
Professor Skyers
Why are foreign wages so low? The world is a place populated with a diverse range of individuals. Due to differing backgrounds, individuals tend to have different opinions and different viewpoints towards certain situations. As a citizen of the United States, I have been raised in a society that professes equal freedoms for everyone in the world despite race, religion, gender or any other distinct differences. I feel that no matter where you are born, you are subject to protection under the Universal Declaration of Human Rights. It is the mission of the leaders of a country to ensure to their best ability that everyone is protected under these rights, and that no one is discriminated against. An article that I feel most countries in our global community do not abide by is Article 23. A portion of this article states “Everyone has the right to work, to free choice of employment, to just and favourable conditions of work and to protection against unemployment. Everyone, without any discrimination, has the right to equal pay for equal work.” (Universal Declaration of Human Rights, 2008) In America, for the most part, we see very fair employment conditions and treatment, with specific legislation enacted that protects against discrimination or unlawful termination. As citizens of a global community it is our obligation to respect the freedoms that everyone has the right to. Without equal participation in this community it ceases to exist. I feel that equal freedom is one of the major reasons why we have such universal diversity and fairness amongst our country, because everyone is able to be on the same economic playing field.
Unfortunately, America is the exception to many countries. When doing research, it becomes evident very quickly that we take “fairness” to a new level. The definition of fair in the United States is that everyone is working towards improving the lives of its citizens universally. However, in countries such as China, fair can be understood as any opportunity that is provided is a blessing and should not be taken for granted. This comes as a result of China’s leadership style, which is communistic. As history has shown us, representative democracies are much more practical and sensible then communism-based countries (China Versus US Economy, 2011). These differing mentalities are what create differences in the culture, and therefore differences in the politics and economics of a country.
All of this information compiled together is what led me to investigate the reasoning for differing wages, and thus differing opportunity amongst countries. As we are taught in classes such as macroeconomics and international business, it is often cheaper to do business overseas. Along with natural resources being more vastly present and cheaper, the cost of wages for unskilled workers seems almost negligible. What is the reason for this? Are these people that much more unskilled then the unskilled workforce in America? These are questions that I have always wondered when sitting through class, but never had the interest to pursue. Due to the Quinnipiac seminar classes, however, I have been encouraged to think beyond the scope of America. Why is there no international minimum wage standard, and why do the citizens of these countries accept such low wages? After investigation, these answers became frighteningly obvious.
As one would imagine, the reason for differing minimum wage requirements is largely economic. In China, the minimum wage law is not set for the entire country due to differing economic conditions in regions. Areas that do not have high economic output do not require high minimum wage, even though the cost of living may not necessarily be lower. Research determined that wages varied from as low as $71 US dollars per month in the Sichuan region, and went to as high as $202 US dollars in the Shanghai region, a much more economically stable and populated region. (China Boosts Minimum Wage, 2011) These minimum wage requirements create much more acceptable standards of living in Shanghai then they do in regions such as Jiangxi or Sichuan.
When outsiders look at numbers such as these they may say things such as “How does someone live off of only 71 dollars per month? That’s not even enough to fill my car with gas.” What someone needs to keep in mind is that although they are making less money per month, it is possible that money is more valuable in another country versus their own. What this means is that although a soda might cost a dollar in the United States, it could cost only 25 cents in a foreign region. If items cost only a quarter of as much in one country when compared to another, then money in that country has four times the purchasing power. What helps us determine the difference in purchasing power between differing countries is purchase power parity (PPP), which is the average cost of a basket of goods in one country versus another. When accounting for purchase power parity, the average Chinese citizen makes $8,400 dollars per year, a much more reasonable amount. (CIA World Factbook, 2012) This, however, is not impressive at all when one considers that China has the second largest economy in the world behind only the United States. Along with this, China has a vast dispersion of wealth, something I will go into later. Why does it have such a large and impressive economy, when the standard of living of the people still remains so low?
A major contributor to this is China’s vast population. Although restrictions have been placed on the number of children that a family can have (something culturally shocking for most Americans), due to a population over 1.3 billion the amount of people requiring jobs is outstanding. (CIA World Factbook, 2012) The Chinese market must be able to sustain growth for the tens of millions of new entrants to the agricultural and industrial industries each year. This creates a surplus of workers entering the workforce, while at the same time the average age of the population is increasing. As a result of this vast population, China’s economy is becoming very unbalanced, and efforts to rebalance it are making minimal impact.
Another contributor to the low wages in China is the reliance on the agricultural industry. Nearly 30% of China’s workforce is focused on agricultural means to support their living, and unfortunately this is a low-paying industry. (CIA World Factbook) Citizens of China are forced to be much more self-sustained because of low profit rates due to abundant farming throughout the country, which does not stimulate the economy. In order for the economy to allow for higher paying jobs, the focus needs to be taken away from agriculture and into more economically encouraging jobs such that the industrial sector provides. Research has shown that migrant workers who transfer to industrial or service industries have doubled their income, providing much more economic stimulation. Although it is very different to change the mindset of the culture, the citizens must realize that in order to realize economic gains, their everyday actions must be altered.
Building off of this, when compared to the United States, China has 15 times the amount of agricultural production. (Census Bureau, 2012) A more reasonable number for a country of China’s size would be around 10 percent (compared to the current 30). While it may seem easy theoretically to just push those in the agricultural sector to the service and industrial, there must be sufficient creation of jobs in order to sustain the workforce. Along with this, there will be structural unemployment due to the mismatch between workers skills and the skills required of those in the industry. As stated previously, this will lead to a cultural shock that will take tens of years for the population to adjust properly to.
In order to work towards improving these conditions in China, I have created a proposal that I will aim towards Hu Jintao, the paramount leader of the Peoples Republic of China, at the next United Nations General Assembly. It goes as follows:
“The following message has been created in order to bring to light the economic stability and balance issue in China. For hundreds of years, China was an isolated society in which no foreign interaction was made, whether it was for culture, economic, or political reasons. As history has shown us, during the nineteenth and twentieth centuries, their culture opened up in order to achieve economic gain, something that we can all understand and relate to. Although China has opened up, the cultural and political barriers of communism still remain. As a result of this history and current philosophy, China has created a great power distance (recorded as a score of 80 on Geert Hofstede’s scale) that results in people understanding to a degree that inequalities amongst each other are acceptable. (Hofstedes Dimensions, 2012) These are not debatable opinions, but rather facts that its culture has spoken to us.
Relating these facts to the issues of the people, we can see that the culture has accepted a significantly lower standard of living then comparably sized economies, something that I feel with the correct steps can be changed. In order to do this, however, large social barriers must be overcome and some of China’s cultural history must be advanced.
Due to current structure of the economy, China has a very large separation in the distribution of income. This can be seen by the average migrant worker making only $1,500 in China, while the GDP per capita is $8,400. As a result, I see this $8,400 figure as unrepresentative of the actual population because in reality the average peasant worker is making less then $5,000 per year and the wealthy are getting wealthier. (CIA World Factbook, 2012)
Enough with the problems, because I’m sure that is what you guys hear about all day. I have now some clear cut solutions that I feel will move China from a depressed economy to one that produces a GDP that exceeds the United States’ exponentially. The first move that needs to be made is changing the focus of the economy from agricultural to more industrial related. China has shown impressive increases in technology with each year, proving that they have the ability to become an industrial leader. By outsourcing agriculture to other countries and increasing technology, great advances in economic development can be made. Secondly, the wage minimum for all regions should be subject to 10 percent increases every 2 years in order to account for inflation and set recognizable goals for the economy. This percent can be adjusted to what the government feels is feasible, but must create the mindset that economic efficiency must be more highly considered. Third, wage opportunity must be provided to the unskilled workforce in China, as up to 150 million citizens live on less then $1.25 per day. This can be done through more strict foreign direct investment regulations, as we have seen multinational companies take advantage of the opportunities China offers. Distribution of income must be more stable in order to keep increasing GDP at the high rate it has over past years.
These suggestions will not only help the economy as a whole, but will specifically help those that need it most. By improving the poorest of the economy, we will be able to see standard of living improve for people of all economic backgrounds. Due to the size of China and its vast population, outstanding Gross Domestic Product numbers are entirely possible. By applying my three suggestions through fiscal policy and other measures, China will set more definable, more achievable goals. As we are all members of a global community that works together to improve, I feel the need to critique your nation. Do not take these critiques as words of hate, but rather suggestions for improvement.”

Works Cited Communism in China . (n.d.). GoWealthy. Retrieved May 9, 2012, from

China Facts. (n.d.). The World Factbook. Retrieved May 1, 2012, from

Einhorn, B. (n.d.). China Boosts the Minimum Wage - Businessweek. Businessweek - Business News, Stock Market & Financial Advice. Retrieved May 9, 2012, from

Hofstede, G. (n.d.). China - Geert Hofstede. Professor Emeritus - Geert Hofstede. Retrieved May 4, 2012, from

Manufacturing in China. (n.d.). U.S. Bureau of Labor Statistics. Retrieved May 4, 2012, from

Recent News Related to Technology. (n.d.). China Technology News. Retrieved May 9, 2012, from

Scissors, D. (n.d.). Chinese Economic Growth | China Vs. US Economy . Global Economy. Retrieved May 9, 2012, from

The Universal Declaration of Human Rights. (n.d.). United Nations: It's Your World. Retrieved May 8, 2012, from

← US Agriculture. (n.d.). Census Bureau Homepage. Retrieved May 4, ← 2012, from…...

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