« Why Cyprus won’t leave the eurozone | Main | Maduro wins in Venezuela by a razor-thin and doubtful margin ... but Capriles should accept it »

April 11, 2013


Feed You can follow this conversation by subscribing to the comment feed for this post.

We also know that:

(1) China has cheaper prices.

(2) China has a larger labor participation rate, and their hours worked are higher too.

(3) Mexico has a GDP (PPP) per capita of $15,000.

(4) Now we learn that Chinese dollar wages per hour are 19% higher than Mexican.

Surely taken all together this should mean that China's GDP (PPP) is actually closer to $20,000 or so than the $8,500 estimated by the World Bank and IMF, and that it is in fact in real terms already quite a lot bigger than the US economy?

AK: nice insight! It bears more thinking about. So, thinking as I go ...

One thing to keep in mind is that China still has huge reserves of underemployed rural labor. (See http://www.stats.gov.cn/english/newsandcomingevents/t20120120_402780233.htm.) As an empirical matter, they are not migrating quickly enough to keep nominal wages down. (The rural labor force was 61% in 2008 --- if the employment-population ratio still holds, that's down to only about 56% today.)

A second thing to keep in mind is that the nominal wages cited in the BofA report apply only to the workers available for foreign private-sector firms. Rigidities dating from the Communist period (the real Communist period, you know what I mean) keep much labor locked up at low wages. That isn't relevant to a foreign firm locating manufacturing production, but it makes extrapolating the wage figures to GDP rather hazardous.

A third thing is that much of the increase in nominal wages is due to an increase in the exchange rate and Chinese inflation. (The GDP deflator went up 53% between 2003 and 2012; the exchange rate rose 34%. Together that comes to a rise in Chinese nominal prices relative to American ones of 104%; about quarter of the wage rise.) Neither will affect GDP as measured at PPP.

A fourth thing is that the labor share of income is higher in China than in Mexico. In 2007, the labor share in China was around 42% of GDP; in Mexico, it was a rather stunning 28%. (Low labor shares have been long features of Latin American economies.)

Add those things up (the third is likely most important) and I think the official estimations of China's GDPC probably have it correct.

Verify your Comment

Previewing your Comment

This is only a preview. Your comment has not yet been posted.

Your comment could not be posted. Error type:
Your comment has been posted. Post another comment

The letters and numbers you entered did not match the image. Please try again.

As a final step before posting your comment, enter the letters and numbers you see in the image below. This prevents automated programs from posting comments.

Having trouble reading this image? View an alternate.


Post a comment

Your Information

(Name and email address are required. Email address will not be displayed with the comment.)