China wage fact of the day

by on February 27, 2017 at 2:51 am in Current Affairs, Data Source, Economics | Permalink

Average hourly wages in China’s manufacturing sector trebled between 2005 and 2016 to $3.60, according to Euromonitor, while during the same period manufacturing wages fell from $2.90 an hour to $2.70 in Brazil, from $2.20 to $2.10 in Mexico, and from $4.30 to $3.60 in South Africa.

Chinese wages also outstripped Argentina, Colombia and Thailand during the same time, as the country integrated more closely into the global economy after its 2001 admission into the World Trade Organisation.

…Manufacturing wages in Portugal have plunged from $6.30 an hour to $4.50 last year, bringing wage levels below those in parts of eastern Europe and only leaving them 25 per cent higher than in China.

That is from Steve Johnson at the FT.

1 Andre February 27, 2017 at 3:05 am

The company I worked for switched our solar monitoring staff from some TCS consultants in Mexico to full time staff in Spain based on the wage rates collapsing there. I would say the quality of staff was better in Mexico however….

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2 Todd Kreider February 27, 2017 at 3:14 am

Can someone please teach Tyler Exchange Rates 101? This has been going on much too long. Journalist Steve Johnson clearly isn’t up to the task.

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3 dan1111 February 27, 2017 at 3:48 am

Has the value of the Yuan against the US dollar tripled from 2005-2016? No, not even close.

Has the value of the Euro fallen against USD by 40% “last year”? No, not even close, no matter what specific measurement points they are using.

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4 prior_test2 February 27, 2017 at 4:04 am

No – but the decline in the euro is across the eurozone, and has the same effect on lowering wages in dollar terms. In other words, German industrial worker wages (at least covered by IG Metall) continue to increase in euro terms – but continue to be flat to declining in dollar terms. Depending on which time spans one picks of course – this game can be played at several levels.

And this is completely separate from the discussion concerning PPP.

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5 dan1111 February 27, 2017 at 5:14 am

My whole point was that the decline in the Euro doesn’t explain the Portuguese numbers.

The decline in the Euro against the dollar has been maybe 5% over the last two years. Even if the points of measurement they used happened to capture some extremes, it’s not going to be more than a 10% decline. Meanwhile, they are describing a 28.5% reduction in Portuguese wages.

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6 prior_test2 February 27, 2017 at 5:38 am

Sure, but this is when we start to enter PPP territory, which is much more subjective. Here is a table – http://stats.oecd.org/Index.aspx?DataSetCode=CPL

But more than that, though an increase or decrease in dollar terms likely reflects a real increase or decrease, and there is no question that Chinese industrial wages have been rising, how easy is that to compare? For example, the number of Chinese with indoor plumbing has undoubtedly been increasing – but has the number of those with indoor plumbing in Portugal been declining?

And not having access to the FT, it is not possible to see the source of that data – but this link – http://www.tradingeconomics.com/portugal/wages – seems to suggest another story.

This section – http://www.tradingeconomics.com/portugal/wages-in-manufacturing – is not using dollars or euros for measurement. And there, one sees a lot of swings, even in monthly data. This is the summary – ‘Wages in Manufacturing in Portugal increased to 123 Index Points in December from 118.32 Index Points in November of 2016. Wages in Manufacturing in Portugal averaged 100.31 Index Points from 2005 until 2016, reaching an all time high of 133.70 Index Points in December of 2007 and a record low of 85.38 Index Points in January of 2013.’

Almost as if the example from Portugal was carefully picked, as the swings are really quite dramatic (and a touch bizarre, to be honest).

7 dan1111 February 27, 2017 at 6:11 am

I don’t know why there was a dramatic drop in the figure for Portugal (it does seem a bit odd). I’m just saying “it’s not the exchange rate”.

8 Gabriel February 27, 2017 at 11:01 am

How exactly is the PPP relevant for an American company choosing where to build its factories?
It cares about the costs of production in dollars, based on the standard exchange rates.

Of course, the wage bill is not the sole source of costs, and there might be other reasons to be in China (gains from being close to other manufacturers/suppliers, work culture, infrastructure…). Still, many of these reasons were developed in China thanks to the originally lower wage costs there…

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9 Todd Kreider February 27, 2017 at 2:52 pm

PPP is partly relevant for an American country to invest overseas in general but not for local wages. Yet it isn’t just American companies that are thinking of investing in the countries listed. I don’t have access to the article either, but I assume it isn’t intentionally writing about only the perspective of where American companies might want to invest that require a lot of labor in manufacturing.

10 Harun February 27, 2017 at 12:19 pm

China usually increases its province level minimum wages, which then boosts wages overall.

Is this a stealth way to appreciate your currency, while also making workers feel more flush with money?

Prices do go up, but exchange rate doesn’t? (I don’t pretend to understand macro, so feel free to school me.)

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11 So Much For Subtlety February 27, 2017 at 3:35 am

Well it might look like the One Child policy is biting. Scarce labor is rewarded more and more. But I doubt that Portugal’s birth rate is much higher.

Socialism doesn’t work? Looks that way. Certainly it is a vote in favor of local autonomy and federalism. Europe and China are both huge economies. Both impose currency regimes over a very large territory. Probably too large in both cases. But Beijing largely stays out of the economy because they have no choice. No one tells them anything. Europe insists on micro-managing too much.

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12 The Other Jim February 27, 2017 at 8:03 am

>Socialism doesn’t work?

Correct. And glass isn’t edible.

We’ve been over this and over this, people. Venezuela says hi. Please keep up.

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13 Thiago Ribeiro February 27, 2017 at 8:14 am

“But Beijing largely stays out of the economy because they have no choice. No one tells them anything. Europe insists on micro-managing too much.”

I guess from lauding the Argentinian juntas to lauding the Chinese Communist Party is not a big step. One of them actually has been able to deliver growth and not to be crushed by the British. Yep, “Beijing largely stays out of the economy”, except for adopting policies we are told over and over are welath destroyers, like exchange controls for instance.Or being basically as free market as the typical Third World country.

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14 XVO February 27, 2017 at 8:42 am

High IQ population released from shackles of communism!

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15 Thiago Ribeiro February 27, 2017 at 8:51 am

1) It gets harder and harders to explain how this high IQ people have spent the last centuries in abject decadence.
2) Which gets to my point. Those fable great policies we are told over and over are the solution for the Third World problems matter little to nothing. If the human capital is there (whatever one thinks it is IQ, work ethics, institutions, etc.), a country gets rich even with supposedly sub-optimal economic policies. China proved that a country can be as statist as its leaders want it to be and experience great GDP growth. Unless one is exterminating kulaks, humting down Mendelianists and making everyone live in communes, economic policy is prerty much irrelevant.

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16 Cliff February 27, 2017 at 9:51 am

China proved pretty much the opposite of that- that economic policy matters, a lot

17 Thiago Ribeiro February 27, 2017 at 11:13 am

How could it be? Their policies are as much as anti-free markets as the average Brazilian or Mexican policy. Capital controls, the horror, the horror…

18 Cliff February 27, 2017 at 4:44 pm

Well their GDP/capita is still lower than Mexico’s, isn’t it? Anyway capital controls are a rather small part of economic policy.

19 Thiago Ribeiro February 27, 2017 at 9:02 pm

“Anyway capital controls are a rather small part of economic policy.”
It is not what I remember being told when WE thought about using them. AndnChina became Mexico much faster han Mexico itself became. Again, how can a country with Mexico/Brazil’s policies (according to the free market indices) surpass Brazil and Mexico so fast? The answer is obvious – they can have the same economic policies all they want, so ething is different. This something is all that matters. Again, unless you are murdering people all your businessmen and geneticists, your “statist” policies matter little.

20 So Much For Subtlety February 27, 2017 at 5:32 pm

I guess someone pointing out that you are not Brazilian and do not have even a basic knowledge of Brazilian history you would expect of a middle schooler really hurts.

I have lauded neither the Argentinian junta or the Chinese Communist Party. Odd bedfellows there. Hard to support both. I simply point out the truth. You can deal with it or not. Alternatively you can go back to trolling by pretending you are from Brazil. Your choice.

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21 Thiago Ribeiro February 28, 2017 at 3:00 pm

Sorry boy, Embraer was a failure until the democratic refime sold it and Petrobras was not created by the generals. Try Embrapa, but do not forget feilures like Angra 3, the decades-long plan to get an Atomic Bomb, the Transamazonic Road, an expensive failure, and Siderbras. There are also good books about Brazilian history for children, you can benefit from reading them. Or ar leas the pictures will distract you a little.

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22 john February 27, 2017 at 8:44 am

Doesn’t the same view about currency regimes and large territory apply to the USA as well?

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23 So Much For Subtlety February 27, 2017 at 5:35 pm

Sure. I think America is too big for one currency. Places like Ohio or Michigan would be doing much better if they had their own interest rate much less exchange rate.

But the US and China are different from the European Union. Presumably a much more flexible economy in both cases makes a big difference. Less regulation of wages. Less price fixing. Weaker Unions.

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24 dan1111 February 27, 2017 at 3:43 am

I expect that employee costs are much more than 25% higher in Portugal than in China.

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25 improbable February 27, 2017 at 4:17 am

Can’t read the article, but can anyone clarify exactly what this wage rate means?

Is it the total cost to the employer or (as seems more likely) some figure for take-home cash at the end of the month… excluding some tax, pensions, etc?

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26 dan1111 February 27, 2017 at 5:07 am

Portugal has a minimum wage of 618.33 EUR per month apparently. That works out to about $4 per hour. So I’m guessing this is simply employee salary (before tax).

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27 Portuguese Guy February 27, 2017 at 1:05 pm

Yes, there is a good reason why we have so many emigrants 😉

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28 C February 27, 2017 at 10:10 am

Yeah – just that. I’d be interesting to see employee costs.

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29 Turkey Vulture February 27, 2017 at 3:47 pm

Good point.

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30 prior_test2 February 27, 2017 at 4:00 am

One can be confident that the Mercatus Center has research available detailing how the Chinese are heading for economic catastrophe by paying industrial workers far too much to be able to compete successfully in world markets.

(And yes, Prof. Cowen seems to take at face value any dollar figure which furthers his argument, regardless of how absurd it is – German industrial workers have also suffered a decline in wages over the last couple of years – in dollar terms, that is.)

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31 Gerber Baby February 27, 2017 at 10:15 am

Well, if you measure Zimbabwean wages in Zimbabwe dollars, their wealth exploded!

No, the Euro is not comparable to the Zimbabwe dollar, but it ain’t the world reserve currency yet, much as cucks like yourself may wish it. In terms of purchasing, for example, imported oil, German workers are worse off.

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32 Bill February 27, 2017 at 8:22 am

Nippin’ At GMU Heals:

“Approximately 25 million students in China pay an average of $400 to $2,200 a year in tuition (Includes instruction, room/board, and meals) to attend public and private institutions. The rates at China’s private institutions vary greatly and many times surpass the average of $2,200.” https://www.classbase.com/News/The-Cost-of-College-in-China-60

We need to lower the salaries of US professors to remain competitive.

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33 Anon February 27, 2017 at 9:09 am

Residency based tuition in the US is racist. The United States is the Great Satan.

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34 The Engineer February 27, 2017 at 10:01 am

Why is this just a more recent phenomenon? Hasn’t this been going on since 1978?

It is my theory that many of the weird economic phenomenon effecting the US over the last 30 years are the result of China entering the global economy. Some of it is due to the command and control nature of their economy, some of it because of their size, and some of it because of the low wages they started with (which to some extent are due to the first two factors).

And, at some point, China will be integrated, these transition issues will be over, and their command and control nature will be phased out. The question is, when will that happen?

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35 Bill February 27, 2017 at 12:46 pm

Agreed. Another way you can think about it would be to think about whether the world economy would have been different had China entered the world economy earlier. If it had entered earlier, the differential would have been smaller between its wages and the rest of the developing and developed world.

The other part of the comparison problem is that for a lesser developed country, China actually has invested in its people. Many can read and write. And, they can do math.

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36 josh February 27, 2017 at 11:06 am

Hooray for equality, right? I know Alex T. will back me up on this.

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37 JWatts February 27, 2017 at 11:28 am

“Average hourly wages in China’s manufacturing sector trebled between 2005 and 2016 to $3.60, according to Euromonitor, while during the same period manufacturing wages fell from $2.90 an hour to $2.70 in Brazil, from $2.20 to $2.10 in Mexico, and from $4.30 to $3.60 in South Africa.

Manufacturing wages in Portugal have plunged from $6.30 an hour to $4.50 last year, bringing wage levels below those in parts of eastern Europe and only leaving them 25 per cent higher than in China.”

So, global wages are merging to a global mean. This is hardly shocking, it’s exactly what a rational person would believe. Why is this surprising at all? Are there free trade advocates who are on record indicating this wouldn’t happen?

FYI I tend to lean towards free trade, but have always assumed that global trade places downward pressure on Western wages and will continue to do so until parity is reached.

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38 Gerber Baby February 27, 2017 at 11:46 am

Au contraire, doubt any economists have given the issue much thought. Wages for workers? Who cares!

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39 Albert February 27, 2017 at 12:01 pm

>So, global wages are merging to a global mean. This is hardly shocking, it’s exactly what a rational person would believe. Why is this surprising at all? Are there free trade advocates who are on record indicating this wouldn’t happen?

No, free trade advocates accept that it is happening but consider it okay only because the government can soften the blow. Oh, they’re also opposed to the government softening the blow. But it’s a nice theory you can eat in place of food.

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40 JWatts February 27, 2017 at 12:06 pm

Also, it’s rational to believe that the effects on wages expand beyond the manufacturing / export sector. Obviously, as manufacturing wages go down, workers will have a higher incentive to seek work in other sectors. This will increase the pool of workers in other sectors thus putting downward pressure on their wages. So, the current global trade system has increased upward pressure on low wage exporting countries and increased downward pressure on high wage importing/exporting countries.

On the other hand, once Chinese manufacturing workers start hitting parity with the lower wage Western countries. I would expect the upward rise in their rates to slow and the downward pressure on those lower wage countries to reverse and match the upward rise in Chinese rates.

I suspect that the trajectory of Portuguese manufacturing workers wages will start rebounding at some point. And then they’ll tend to move in the same direction as Chinese wages. They may not be exactly the same depending on whether Portugal is more or less efficient at manufacturing than China, but they should move in the same direction and at roughly the same magnitude.

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41 Cliff February 27, 2017 at 4:48 pm

It’s not a rising tide lifts all boats situation? The Chinese don’t buy stuff from the U.S.? When U.S. farmers became better paid factory workers, did this lower the wages of others as former craftsmen became professionals?

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42 JWatts February 27, 2017 at 8:29 pm

“It’s not a rising tide lifts all boats situation?” No, it’s a convergence to the mean.

” The Chinese don’t buy stuff from the U.S.?” The US runs a considerable trade deficit with China. So, the US buys manufactured goods and the Chinese buys US treasuries.

“When U.S. farmers became better paid factory workers, did this lower the wages of others as former craftsmen became professionals?”

It exerted downward wage pressure, but the productivity gains were so enormous that it hardly mattered. Furthermore, the reduction in farm workers lead to upward wage pressures for the remaining farmers.

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43 JWatts February 27, 2017 at 8:37 pm

It’s not a zero sum game. Productivity gains ensure that the overall global wage average is growing. However, there’s still a convergence to a global wage mean. Pressures will be greater in sectors that compete directly, such as, manufacturing workers, but this will apply wage pressure in other sectors as they compete for workers/pay.

So, China manufacturing wages will rise fast, but farm wages will also be pulled upward as workers leave the farm to head to the higher paying factories and reduce the workers in the farming sector. In high pay Western countries, the opposite will happen. Manufacturing wages will have the most downward pressure, though they may still have net growth, but it will be reduced by the magnitude of the downward vector from overseas competition. Meanwhile, workers will migrate to higher paying jobs in other sectors, increasing the pool of workers in those sectors reducing the wage growth in those sectors.

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44 Harun February 27, 2017 at 12:22 pm

Productivity matters, too.

Honestly, a lot of Chinese workers back in the day were peasants who were not so productive.

There is some sweet spot where your labor is cheap, but industrially savvy. Taiwan in the 80’s and 90’s. Japan in the 70’s and 80’s.

China is probably entering this area soon – they will still be competitive but it will be with better workers not cheaper workers.

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45 Rafael R February 27, 2017 at 1:07 pm

It’s the same trend with the arguably better measure of PPP per capita income. In 2005, Chinese per capita income was 45% of Brazil’s, now it’s 102%.

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46 Turkey Vulture February 27, 2017 at 1:10 pm

If there are different regulatory regimes in different countries, but fairly “free” trade, what would that do to manufacturing labor rates across those different regimes?

My initial impression would be that (all else equal) in nations with, say, less environmental regulation, the labor share of costs to produce a good that competes globally has more room to grow under a lax regime than a highly regulated regime. So, again, all else equal, I would expect that with increasing globalization, labor costs could increase while still remaining internationally competitive in lax regulatory regimes, while they may have to fall in highly regulated nations.

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47 Thomas February 27, 2017 at 3:07 pm

Yes, but have you considered how positively the wealthy scions, the winners of subjective superstardom, and the practioners of regulation ate affected by increased regulation? The Democrat party offers a middle finger to all blue collar workers; poor minorities should be pensioners not workers and poor whites can go fuck themselves.

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48 M February 27, 2017 at 1:59 pm

How much of this is composition change in the kind of non-automated industrial work done in e.g. Portugal vs China, rather than Portuguese seeing real wage cuts for the same work? That is manufacturing employment decreasingly happens in Portugal at all outside low pay sectors, and manufacturing employment in China shifts towards high wage sectors?

(If the Portuguese still had a Peso and could devalue, might they have made an even greater wage cut (with the bonus of increasing employment, defecits, etc.?).

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49 Bill February 27, 2017 at 2:49 pm

Maybe we can look at Chinese low cost production as a way for US entrepreneurs and inventors to make more money for their invention than if they had been forced to choose a more expensive place to manufacture the product.

Innovation does not equal production. If I write a book today I can choose an Asian shop to print the book at lower costs than I would had I chosen a US printer to print the book. The difference is mine to keep.

So, perhaps innovation today is better rewarded than it was in the past due to low cost foreign production.

Maybe we should look at Chinese wages and compare them to the return on education earned by American entrepreneurs and inventors.

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50 Thomas February 27, 2017 at 3:10 pm

Okay, but how will wealthy Democrats like you deal with the unemployed poor? Play the poor minorities against the poor whites? #OscarsSoWhite -> white nationalism even though the entire academy is liberal? Plantation politics, Bill.

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51 Bill February 27, 2017 at 3:45 pm

Hey, I’m for public supported education and medical care. Are you?

As for the unemployed poor, do you think it is fair to protect a business owner from competition, so he can have higher profits and automate the factory and charge everyone a higher price. Get real. In the long run, protectionism doesn’t help that business either. As my industrial engineer brother tells me, the US is a mature market. Unless you innovate or export, you rely on a mature market for survival. The US, by the way, is not the only market in the world. So, if we protect ourselves from competition, get lazy and reward the old businesses that will not survive anyway, China will sell to the world, ex US. They can achieve economies of scale which a US firm will not be able to achieve because it sells only in a mature market and has not adopted to sell abroad.

Have you ever noticed that on Kickstarter the people with ideas contract out their manufacturing to China so they can get their business off the ground and reap the rewards of innovation?

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52 Turkey Vulture February 27, 2017 at 7:17 pm

What if we just protect ourselves to the extent that our regulatory regime gives manufacturing in nations free of those regulations an advantage?

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53 Bill February 27, 2017 at 7:48 pm

I always like it when people use the word “regulations” That has no meaning. Be specific. By regulation, or lack thereof, do you mean the lack of air quality regulations in Beijing.

Put on your face mask.

Or do you mean the lack of food regulations which kill a new born baby with tainted formula.

If you talk money, you talk about something that is fungible. A yen is a yen; a dollar is a dollar; but when you talk “regulation” you really don’t say anything. You don’t say anything because you are not specific. You are blowing smoke from an unregulated smokestack when you do not speak specifically about a regulation, and, its costs, and its benefits.

54 Turkey Vulture February 27, 2017 at 9:15 pm

Well, regulations has a meaning, as you well know, and it would encompass each that you mention. And of particular relevance would be the extent to which those regulations vary between different possible locations of manufacture, and the production cost differences that exist as a result. If we impose strict regulations domestically but allow a free trade regime, the ills we are attempting to alleviate with regulation will be outsourced, and the domestic workers who would have otherwise been competitive with foreign production bear a substantial portion of the costs of that outsourcing.

55 Bill February 27, 2017 at 10:44 pm

Regulations varying by the locations of manufacturers is not surprising. Consider the location of Los Angeles. Would coal burning plants in LA be a wise idea? Externalities and the wealth of those living in an area who wish to preserve their air or water maybe best explain regulations. A Chinese worker in a country without democracy, just as a worker in Russia whose steel mill polluted the air and water, have or had little wealth, and little voice. Maybe environmental regulations, for example, tell you something about the wealth of a society and the voice of those affected by pollution, for example.

56 Thomas February 28, 2017 at 1:47 am

So why regulate West Virginia but not China, Alaska but not Mexico? The theme of my earlier comment was to illustrate political consequences. The regulatory regime + identity politics ideology is like the Oscars: rich elites blaming people who look like themselves in faux self-deprecation, a disgustingly Machiavellien strategy to have one’s cake and eat it too. LA can be rich and green at West Virginia’s expense, and blame for the carving out of the bottom of the job market can be shared across the economic spectrum along superficial demographic lines.

There is no virtue in your politics, Bill.

57 Bill February 28, 2017 at 9:04 am

Turkey, C’mon, you missed the point, China is not democratic. Go to some state capitalism one party state and look at how they regulate pollution, as in China or Russia. What you really would like is if the polluters could rule.

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