Higher pay builds demand in China…

Seattle’s City Council approved an increase in the minimum wage to $15 an hour. This has been expected for a while but we can still cue the angry talking heads as opponents of minimum wage increases line up to argue that this is an apocalypse for Seattle jobs.

The argument about what effect this will have on employment can go on endlessly. Seattle’s increase, from Washington State’s current $9.32 an hour, will at least apportion some facts. Though those facts won’t emerge especially fast: The increase takes effect in stages, with 500+ employee businesses and national chain restaurants required to phase it by 2017 or 2018 and other businesses only reaching the much-discussed $15 an hour in 2021.

TMN doesn’t really have a position on whether in the long-run this will be jobs-destroying or (if it leads to more money in the hands of low wage workers) jobs-creating. Raising wages has some potential to cut jobs. But let’s face it, that argument can be used against anyminimum wage, whether $15 an hour or $2 an hour.

The idea of a 60 percent increase in the minimum wage, even one phased in over years,makes already cautious policy makers deeply nervous. Yet wage increases of this magnitude are by no means unprecedented. Fast growing economies see increases of this scale all the time. According to China’s official statistics (from the Bloomberg terminal, but the older stats in table 10 here tell a similar story) private-sector manufacturing wages in China increased 16 percent in 2010, 20 percent in 2011, and 17 percent in 2012. That’s 63 percent in three years, a bigger increase than Seattle will see in six. That comes on top of a several years of wage increases before 2010. As this blog has pointed out before, if U.S. factory pay had risen as fast as China’s, the average manufacturing worker in the U.S. would be earning close to $50 an hour.

Obviously, what’s happening in China is driven by an intense shortage of labor. Seattle’s wage increase is not taking place against the same background of economic growth. Then, too, China’s double-digit annual wage increases do have economic costs. Manufacturers can move can move to lower wage locales like Indonesia and the Philippines, and many have. The fact that some jobs may move, though, is not in any way the end of the discussion. As wages grow, other jobs are created.

What’s worth bringing out here is that no one thinks the Chinese economy would grow even faster if it could put a lid on wages. On the contrary, the conventional thinking on China is that growth is constrained by a lack of demand from local consumers. The faster China can build its middle class, the faster it grows. That’s not a controversial view of China’s economy. It seems to TMN that it’s a perfectly reasonable view of the Seattle economy, too. Bloomberg