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adults now have at least a lower middle school education and therefore are basically literate and numerate. Also, millions of young and middle-aged workers from rural areas are eager to get out of the countryside and therefore willing to work hard in a disciplined manner for pay that is low by international standards, but higher than they can earn in agriculture. China also has many millions of university-educated young adults who are especially competitive because they are good in engineering and technical fields, are hard-working and motivated, and work for a fraction of the salaries received by equally capable young adults in developed countries. China now produces at least half of the world’s cameras and photocopiers and one-quarter of the world’s television sets and washing machines.153 Indeed, China “is the new workshop of the world, producing two- thirds of all photocopiers, microwave ovens, DVD players, and shoes, over half of all digital cameras, and around two-fifths of personal computers.” 154

Labor compensation in China’s manufacturing sector is higher than it was a decade or two ago. This means that some other developing countries are now able to compete with China purely on the basis of earnings per manufacturing worker. Real living standards have been rising in China’s cities, and real earnings have been rising for urban staff and workers in manufacturing, as shown in tables 10 and 11 and chart 5. 155

Why are urban manufacturing earnings rising rapidly in China? Some scholars argue that because labor productivity is rising rapidly in China’s city factories, we would expect city manufacturing earnings also to rise.156 Among the forces driving the increase in urban manufacturing earnings are a sustained rise in the returns to education and skill, as well as a wage premium for Communist Party members and others remaining in protected state-owned enterprises.157 Rigidities in urban labor markets also have forced earnings upward and impeded competition.158 Other experts contend that the huge supply of surplus urban and rural workers ought to keep their earnings down: “The coincidence of rising mass unemployment and rapid increases in real wages in the late 1990s appears contrary to the predictions of competitive labor markets.”159 The range of earnings in Chinese manufacturing has indeed widened, and the least educated unskilled workers have experienced near-stagnation in their real earnings “under the twin pressures of heavy migration from China’s villages and [the] intense pursuit of cost advantage from overseas buyers of labor-intensive goods.” 160

In addition to the earnings bill, required payments for other urban employee benefits have increased.161 China is trying to build a viable system of pensions, medical benefits, unemployment benefits, workers’ compensation, and housing benefits, at least for its city population, as discussed previously. One source argues that required employer payments for these urban social safety net programs in China are now higher than they need to be--for example, substantially higher than in Malaysia, South Korea, Taiwan, and Singapore.162 In some cities, the mandated payments are still rising rapidly. For example,

Average labor costs in Shanghai rose by 15% last year due to increases in welfare payments, healthcare subsidies, and housing subsidies. On average local companies paid 10,849 yuan in fixed and optional welfare fees, up 22.4% [from the year before]. This rise was significantly higher than in cities such as Kunshan, Nanjing, Hangzhou, Suzhou, or Ningbo. 163


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