Just as the New York times ran a story on the "end of cheap labour" in China with large companies sourcing cheaper labour elsewhere; and as The Economist by Invitation began a conversation on the possibility that it had reached a Lewisian turning point, in South Australia, it was revealed a Chinese contractor was being investigated for allegedly paying its workers as little as $1.90 an hour to dismantle heavy machinery at the former Mitsubishi plant. The current Federal minimum wage is $14.31 an hour.
As Stephen Roach, one of the contributors in The Economist by Invitation made clear
even if Chinese manufacturing wages increased at an average annual rate of 25% over the 2007-10 period—highly unlikely for reasons noted below—the hourly compensation rate would be just $1.98 in 2010. That would boost Chinese compensation to only about 4% of US pay rates—barely making a dent in narrowing the arbitrage with major industrial economies. A similar, albeit unsurprisingly less dramatic, comparison would be evident with the developing world. At $1.98 per hour in 2010, Chinese hourly compensation in manufacturing would still be less than 15% of that elsewhere in East Asia (ex Japan) and only about half the pay rate in Mexico
It is important to stress that this 25% hypothetical wage-inflation scenario is well beyond the outer bound of any conceivable outcome for China. (emphasis added)
It appears that the Chinese contractor at Tonsley overpaid its Chinese workers by China's standards. By Australian standards of course the 24 temporary migrant workers were allegedly underpaid by its employer more than $130,000 over an eight month period. This should put the labor cost arbitrage question into perspective.
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