'World's factory floor' to raise minimum wage

http://www.ft.com/cms/s/0/4262374c-32f6-11df-bf5f-00144feabdc0.html

Summary
Financial Times has reported a 20% raise of average minimum wages in Guangdong, the biggest export centre in China. The provincial government launched the policy primarily due to massive unfilled jobs positions as factories were rushing to complete “surge in orders since February. The enforcement of raise in minimum wages aimed to attract workers to fill vacant positions and improve their living conditions as CPI in February rose 2.7% comparing last year. Factories in Guangdong have started to move to poorer regions in Western China to take advantages of cheaper taxes and lower wages. Plus, less workers will work in Guangdong as they can now work closer to home. Au Yiu-Chee, who owns a factory in Guangdong, claimed the minimum wage policy was unexpected and he was now in a less favoured position comparing to manufacturers in Cambodia. Forecast for the “world’s factory floors” remains challenging in the 2010.

Connection
Minimum wages and CPI were mentioned in the article and they are closely related to the indicators of economics. First of all, CPI stands for Consumer purchases index and it reflects how prices have changed on daily consuming goods. Some of the examples are milk, pork and beat. It serves as an indicator which can be used to determine the minimum wages because workers will need enough purchasing power to sustain their lives. Ideally, minimum wages should be parallel to the CPI level. Minimum wages impacts both the labour force participation and unemployment rate because if minimum wages are set at workers’ desired level, lots will be more willing to look for a job or work again because they will receive the same minimum amounts of wages regardless of their performance or positions. Keep in mind that because of increase expenses for business, businesses might hire fewer employees to compensate the increasing wages. Eventually, unemployment rate might rise again. It is a dilemma that government has to consider thoroughly before implement minimum wages.

Reflection
The drastic increase in CPI was mainly due to 40% inflation in RMB currencies for the past year. Reasons why China has been the “world factory floors” are its abundant supply of workers and cheap currencies. Cheap currencies allow China factories to stay competitive as we are one of the biggest exporter in the world. China has now faced pressure both within and oustide the country. Foreign countries, like U.S., are forcing the inflation of RMB.On the other hand, in order to resolve complaint from workers and supply factories with workers, the Guangdong Provincial government decided to implement the raise in minimum wages level. Nonetheless, in order for Chinese factories to stay competitive, I don’t think minimum wages should be implemented. Instead of raising minimum wages, factories can negotiates with workers and government by providing foods, shelters and potential medical benefits to avoid a raise in minimum wages. In addition, factories should organize social events so that workers are more loyal to their factories. If workers are pleasant with the wages with all the benefits, raise in minimum can then be prevented and factories can remain competitive although there is an increase in RMB currency.