June 05, 2016
The NYT has another piece that talks about China’s demographic problem due to an aging population. (In fairness, this is really a sidebar, the piece is mostly arguing that China has failed to get itself on a sustainable growth path.) I went through the arithmetic on this last week.
The basic point is simple: China has had extraordinarily rapid productivity growth over the last three and a half decades. The impact of this growth on raising wages and living standards swamps any conceivable negative effect from a declining ratio of workers to retirees. The math is about as simple as it gets, but I’m still curious how the bad story is supposed to manifest itself.
Keep in mind, the story is supposed to be a labor shortage. What does that mean?
That’s a serious question, how does an economy know it’s having a labor shortage? Presumably it means that the lowest paying jobs end up going unfilled because people have better options. So what? Many retail stores will go out of business, so will some restaurants, and other low wage employers. Why would we care? Remember, no one is going unemployed. These businesses are going under because they can’t find workers willing to work at the wage they are offering. Instead, workers are going to better paying, higher productivity jobs. That’s unfortunate for these businesses, but hey, that’s capitalism.
There is an issue that much of the support for retirees may go through the government, which means that China would have to increase taxes. There may be a Chinese Grover Norquist who will make any tax increases very difficult politically, but that is a political issue, not an economic one. Workers who have seen their real wages double or triple in the last couple of decades can certainly afford to pay somewhat higher taxes to support their retired parents.
So again, what exactly is the problem?
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