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Competitive edge lies in innovation, not low wages
By Frank Jiang |
00:00 UTC+8 July 19, 2010
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Print Edition
Print Edition
A RISE of minimum wages should not affect corporate competitiveness as some economists claim.
Minimum wage laws are supposed to ensure the least-able workers a sufficient income stream so they can provide the necessities for themselves. Across Chinese mainland we are witnessing growing minimum wage rates of more than 20 percent in areas such as Henan, Jiangxi and Anhui provinces.
Economists like Zhang Wuchang posit that a rise in the minimum wage or an increase in labor costs is passed on to customers in the form of higher product prices to ensure a company's profit levels are stable.
They argue that, assuming demand for products and for resources are held constant in a market economy, an increase in the price of a particular product caused by minimum wage hikes and the inclusion of minimum wages "violate the principles of the market" and distorts competition.
In broader terms, they argue a market should be free of government intervention.
These arguments lack a degree of insight; this is not to say the views are invalid but that they overlook vital factors. If one looks at giant multinational companies, it is clear they retain their competitive value and market share not by slashing minimum wages to dramatically reduce labor costs but by innovating.
It's mainly because of innovation that large companies are able to survive competition and tweak market dynamics in their favor.
Even if those companies have raised minimum wage rates, innovation can still enable them to succeed competitively and gain a steady stream of revenue.
(Frank Jiang, an Australian student living in Shanghai)
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