The Increasing Wage Gap with India

Filed in archive Believe It or Not on August 3, 2004

Recent news posts suggest that India and China are struggling with rapid wage inflation. Some have suggested that a tight labor market is allowing skilled workers to demand excessive wage increases.

However, a recent report by Boston Consulting indicates that the wage gap between China and developed countries is increasing! For instance, the average worker in China had an 8% raise, to his hourly wage of $1.14. The average German worker found only a modest 2% wage hike last year. However, the average hourly wage of $34.50 makes that 2% much more significant in real dollar costs.

Economists actually expect this wage difference between developing countries and first world countries to stand for a while longer.

...the growth of wages in China and India will be limited because of the enormous reservoir of underemployed people in these countries," the report says, noting that 800 million Chinese living in the countryside "are expected to exert very strong downward pressure on wages for low-skilled positions over the next few decades. . . . India, for its part, has a pool of 25 million highly educated English-speaking workers, expanding by a million every year.