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Will High Wages Lead to the Relocation of Manufacturing Industry?-- A Research on the Relations between Labor Cost, Industrial Chain and Industrial Relocation (No.204, 2019)


By Zhuo Xian, Research Department of Development Strategy and Regional Economy, DRC& Huang Jin, School of Economics and Management, Beijing Jiaotong University

Research Report,No.204, 2019 (Total 5704) 2019-11-20

Abstract: Over the past decade, the annual growth rate of labor cost of manufacturing industry in China is 6 percentage points higher than that of the global growth rate, but the contribution rate of China to global manufacturing growth rose from 27% between 2000-2008 to 55% between 2008-2018, and there are no signs showing large scale of manufacturing relocation. This paper believes that relative labor cost and the length of domestic industrial chain are important indicators for judging a nation’s competitiveness in manufacturing industry. The change of relative labor cost decides the willingness of industrial relocation, and the length of domestic industrial chain determines the possibility of industrial relocation. In view of the advancement of productivity, although China’s relative labor cost has increased to some extent, the competitiveness and spatial gradient advantages still remain. Based on domestic input-output table and international input-output table, the paper calculates the lengths of domestic industrial chains of each sector in manufacturing industry, and divides manufacturing industry into four categories according to the facts of relocation willingness and relocation possibility, including labor arbitrage-type, machine dividend-type, reverse flow-type and security type, and before conclusion the paper raises some targeted measures to improve the resilience of industrial chain.

Key words: manufacturing industry, labor cost, the length of industrial chain