Posted by: Dirk | January 15, 2008

Unlimited Supplies of (Chinese) Labor?

Robert Tignor has written a biography on W. Arthur Lewis, Nobel prize winner and famous mostly for his dual sector economy model explaining economic development. The Lewis model explains how labor is drawn from the agricultural sector to the city’s manufacturing sector. Its marginal productivity is higher in manufacturing (let’s not discuss whether it is zero in the rural economy or not), so labor is drawn into manufacturing by higher wages. This could be going on in China today. Tyler Cowen, writing at the NY Times, reports that after data revisions China still has 300 million poor people living on less than a dollar a day. More unlimited supplies of labor are impossible to find on this planet, I would say. Cowen concludes that the yuan may not be so undervalued after all.


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