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Wage Compression in China

By Matthew Yglesias on December 13, 2010 at 3:29 pm

"Wage Compression in China"

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Andrew Jacobs’ article on China’s glut of college graduates is so good that I have two different, unrelated points I want to make about it. For today, point one is about income inequality:

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But the supply of those trained in accounting, finance and computer programming now seems limitless, and their value has plunged. Between 2003 and 2009, the average starting salary for migrant laborers grew by nearly 80 percent; during the same period, starting pay for college graduates stayed the same, although their wages actually decreased if inflation is taken into account.

This is roughly speaking the kind of change that egalitarians would like to see for the United States. Wages for working-class people are rising, the proportion of the population getting “good jobs” in the professional sector is going up, but on average professionals’ compensation is flat or even falling. Now maybe in an ideal world the Chinese economy would be growing even faster and professionals would be seeing wage increases on average, but slower than the working class wage gains. Either way, the point is that this “compression” pattern of economic outcomes is perfectly consistent with a handful of super-rich people getting even richer. Indeed, a bet that part of what we’re seeing in China is that a few lucky entrepreneurs are assembling vast fortunes riding the growth wave to the top. Nevertheless, in a more sense the trends in China are toward upward mobility (from farms to factories, and from factories to service jobs) and more equality.

This is relevant to the United States, too, where the relationship between working class wage stagnation and explosive growth in tippy-top incomes is really less clear than people sometimes seem to me to think. Clearly expanding the growth rate and the economic opportunities at the bottom end should be a priority. But if that happens will super-rich hedge fund managers suddenly get less rich? I don’t see it.

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