wagesIt seems to me that the minimum wage law entices companies to move jobs from the U.S. to China.
How can American blue collar workers command higher wages if Chinese workers are willing to do the same jobs for alower wages?
To me, the American minimum wage law runs contrary to the market forces.
So if the U.S. dropped the minimum wage law, would jobs move back from China?
Eliminating/reducing the minimum wage could have an impact on increasing the jobs available in the US. But that does not mean that those jobs would come from China. It is not simply lower wages, but reduced requirements on environmental protection, worker safety/quality of life, regulatory burdens. Overall the cost of producing a product in China is far lower than in the US.
A lowered minimum wage could make it profitable to run certain businesses that are lower profit that have been strangled by minimum wage increases and foreign competition. The removal of minimum wage would also reduce the incentive to hire foreign workers in the US illegally when there are US Citizens looking for work. It would also likely have the effect of opening up more part time positions that could be filled by younger workers that have no experience. Today’s high school students find it difficult to find jobs even at fast food restaurants because the cost of training is so high and the washout rate is far higher for inexperienced workers than those that have been in the workforce.
In a word, no.
For one, there is evidence that the minimum wage in the US is not even a binding constraint in most states. (Note that I’m talking about “binding” in the economics sense here, not the legal sense. You may recall that when the minimum wage is non-binding, removing the min. wage does not change the equilibrium wage). If someone can find a link for this please let me know. A professor in my department mentioned this in a lecture, but I can’t find the relevant paper.
But even if the minimum wage was binding, it would not be an important reason for the wage differential. The main reason why there is a wage differential between blue collar jobs in US and in developing countries is that the average price level in other countries is lower (in dollar terms) than that in the US. Another way of saying this is that the purchasing power of a dollar-equivalent is far greater in developing countries than the US itself, thus allowing workers in other countries to work for less. For this reason an effective way of bringing back jobs to the US would be to prevent China from undervaluing its currency, which it has been doing for quite a while - How the US would manage to do that is another question :-). However note that even if there was no undervaluation of the Renminbi, there would still be a price level difference due to different standards of living. Short of imposing trade barriers, the US will simply have to live with that.
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