Monday, January 18, 2010

Bloomberg: Henry Ford Raising Wage May Give China Tip on Worker Productivity

It simply is fascinating from an economics viewpoint to watch what is happening on the 2 ends of the Earth - East v West.   Reading so many stories of the East remains akin to reading what must of been in the newspapers in the West in the 1950s/1960s.  However, unlike in that era where international borders meant much more than they do now - we had at least 2 good generations worth of good times before global wage arbitrage began inflicting its punishment.  I doubt the current workers enjoying these newfound gains will have 2 generations to benefit before the work is moved to an even cheaper locale.  But in the new paradigm stock market "long term" is next week, so we can't worry about the implications 20 years out.

My only advice to these Chinese is not to ask for too much of a wage increase because the next thing you know - your plant is moved from the Eastern, coastal side of China to the Western, rural side where wages will be even lower.  [Feb 28, 2008: China Raising Minimum Wage]  You can almost hear the site studies in regions near Mongolia being done from here.  Let the global race to the bottom (for labor) continue!

Via Bloomberg:
  • “Little” Xie says he wants to own one of the autos he helps build at Ford Motor Co.’s assembly plant in the Yangtze River city of Chongqing. With his mortgage payment taking about 60 percent of his 2,000 yuan monthly pay, that won’t happen soon.   “It isn’t even worth talking about company incentives to help buy a car, since I can’t afford one in the first place,” said Xie, 28, a six-year Ford employee, as he approached the factory gates for his night shift. Xie, whose nickname comes from his youthful age, asked that his full name not be used.
  • Higher wages for people like Xie would help resolve China’s biggest economic challenge: shifting away from growth fueled by exports and investment and moving toward an economy driven more by domestic consumers. (yet those higher wages will drive the corporation to move the plant to the next low cost producer - oh such a conundrum when only so many jobs exist int he world)  China’s communist leaders might learn a lesson about how to create a more prosperous working class from American industrialist Henry Ford.
  • The founder of the auto manufacturer that bears his name generated headlines around the world in January 1914 by doubling the average autoworker’s pay to $5 a day. The move made Ford’s Model T more affordable, created a more stable workforce and helped stoke the growth of the U.S. middle class, according to Bob Kreipke, the historian for the Dearborn, Michigan-based company.  “This allowed people to increase their buying power and, at the same time, they produced a better product,” Kreipke said.  (quaint times indeed, of course Mr. Ford did not have the option of moving his plants 7000 miles away did he?)
  • Ford’s $5 daily pay allowed an employee to buy a Model T that cost $440 with the equivalent of about four months’ wages. Chinese factory workers averaged 24,192 yuan ($3,544) a year in 2008, according to figures from the National Bureau of Statistics in Beijing, so it would take more than three years worth of wages for them to afford the cheapest car advertised on the company’s Chinese-language Web site: a four-door hatchback with a 1.3 liter engine listed for 78,900 yuan.
  • Low wages in the world’s third-largest economy are slowing the rise of a consumer culture that Premier Wen Jiabao and President Hu Jintao have said China needs to maintain expansion at the 8 percent a year that will generate jobs for its 1.3 billion people.
  • That hasn’t stopped China’s auto industry from booming, with sales last year of 13.6 million vehicles, eclipsing the U.S. as the world’s top market for the first time, according to figures from the China Association of Automobile Manufacturers in Beijing. The surge in purchases was spurred partly by government subsidies to help farmers buy autos. (all the world is just a government subsidy machine - the joys of fiat currency)
  • Encouraging higher pay might help sustain the boom and boost consumption, which currently accounts for about 35 percent of China’s gross domestic product, compared with 70 percent in the U.S. It would also help ease income gaps between the rich and poor, which are higher than those in South Korea and Taiwan at similar stages of development and have led to riots and other labor unrest.  (again, easier said than done when your top advantgae is limitless, cheap labor)
  • While the auto company declined to comment on worker pay, Ellen Hughes-Cromwick, Ford’s chief economist, said Ford projects growth 10 years into the future for the countries where it operates, and it sees China’s economy in a period of expansion characterized by rapid rises in employee compensation similar to South Korea’s economy starting in the 1960s.   “We are at a situation where wages are moving up and doubling in a very short period of time,” Hughes-Cromwick said in a telephone interview from Dearborn. “We do expect takeoff to generate pretty substantial wage gains.”
  • One way China’s government might help boost pay would be to raise the value of the yuan, said Nicholas Lardy, who studies the Chinese economy as a senior fellow at the Peterson Institute for International Economics in Washington.   U.S. and European officials have said China keeps the yuan artificially low to boost sales in foreign markets. An undervalued currency encourages manufactured exports at the expense of developing the more labor-intensive service sector, depressing job growth and keeping wages low, Lardy said.
  • Henry Ford employed some of the millions of eastern European immigrants who poured into the U.S. a century ago, as well as migrants from the South and Midwest lured by high wages. China’s leaders must deal with hundreds of millions of rural laborers coming to cities, who put downward pressure on salaries.  “Unskilled workers are condemned for generations to low wages,” Xiao said.
  • Even a skilled worker like Gong -- who also asked that his full name not be used -- said he makes only 6 yuan ($0.88) an hour as a welder at Ford’s Chongqing plant, 9 yuan an hour for overtime.  “I have a dream of someday buying a car,” said Gong, 29, as he walked home in the rain after a 10-hour shift. “I guess it will take six years of saving.”
As I said, simply a fascinating time for the globe - at least if you are an economist.  If you are a private sector worker, relying on a multinational corporation - interesting might just be the start of it. [Jan 12, 2010: Jim Cramer is Right]

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