The Analysis Of The Economic Effects Of Labor Cost Changing

Owning abundant and cheap labor resources has been considered as China's economic comparative advantage. It has also been treated as the important foundation supporting Chinese enterprises to maintain the price advantage of their products and to compete in the market. The recent continuous increase in China's labor price has aroused some worries. Some people think it will erode China's labor cost advantage and push the enterprises, and the whole economy, into development predicament. However, labor price has a dual nature: it means the cost to enterprises and the compensation to workers. This decides the change of labor cost reflecting in essence the distribution among different interest bodies. Driven by competitive pressure, enterprises cut down the labor cost. This led directly to the suppression of the growth in workers compensation and the biased micro distribution structure deviating from common workers, which frequently triggers the conflicts between labor and management. Furthermore, the biased distribution structure will inhibit the effective demands as well as the investments in human capital of the whole society, thus constituting a fundamental constraint to economic growth.Based on the dual nature of labor price, this paper tries to answer three basic questions through analyzing the economic effects of the change in labor cost: The first is whether the current increase in China's labor cost is enough to cause the worry? The second is what is the intrinsic mechanism to the changes in labor cost affecting the developments of the whole economy and enterprises and the? The third is whether there is consistent interest among the goals of labors' participation in the economic sharing and economic growth and enterprise development?On the macro aspect, it's the intrinsic requirements of the developments of economy and society to increase labor compensation. The results from the analysis of changes of unit labor cost and relative unit labor cost levels show that productivity plays a fundamental role in the process of labor cost effects. The conclusion is proved in the analysis of China's FDI inflows and export situation in recent years. It is further confirmed in the analysis based on trade model. Meanwhile, data analysis shows that China's labor cost advantage is still significant at present and there is still a large room for labor cost increase. Therefore, it is not necessary to worry about the increase simply in labor compensation. The actual changes of competitiveness indicators show that labor's participation in the economic sharing and enhancement of economic competitiveness can be integrated to achieve the goal.On the micro aspect, the analysis concentrates on the effects of changes in labor costs on the competitiveness of enterprises and their development. The export situation of labor-intensive products such as shoes shows that the Chinese enterprises have significant advantage on the aspect of product price at the present. Even if the quicker increase in labor compensation cost is all transmitted into price, it will not smooth away the advantage of its price competitiveness. On the other hand, even if the pressure of labor compensation cost increasing cannot be transmitted through product price, it's not a simple rise-exclusive relationship between labor compensation cost and the competitiveness of enterprises due to the dual nature of labor price. Under the contractual framework, the relationship between the changes in labor compensation cost and the evolution of enterprise competitiveness generally follows two-direction logics. In particular, the increase in labor compensation cost will stimulate the efficiency of enterprises' employment, thus the increase in labor compensation cost can be offset through the enhancement of productivity and the reduction of transaction costs.Finally a new interpretation is offered on release mechanism of the effects of labor cost increasing based on bargaining perspective. In the market environment of free transaction, the pressure of labor cost increasing will be released eventually by so-called "bargain-accept/not-accept" mechanism, which will lead to the turnover, searching and matching in labor market as well as enterprise's acts of innovation, migration or bankruptcy. This analysis indicates that the current increase in labor cost may motivate the pattern transitions of enterprises' development and a harmonious relationship between the enterprise and the labor can be achieved. And the government may play an active role in guiding enterprises' scientific development and harmonizing the conflict of benefit distribution between the enterprise and the labor. Empirical researches, based on the large sample data and the cases of some enterprises, examine the intrinsic mechanism to the effects of labor cost increase and prove that the win-win model of harmonious development between enterprise and workers is not only theoretically possible but exists in reality as well.The paper analyses the problem of current labor cost increase from a new perspective of distribution of interests. The explicit calculation and comparative analysis of several kinds of labor cost index illustrate more completely China's current labor cost advantage, the growth space of labor cost in the future and the evolution of economic competitiveness under the condition of the labor cost changing .Then a systematic analysis is given of the effects of labor cost increase on competitiveness of economy and enterprises. Finally the unitarity is expounded and proved between improving labor's benefits and promoting the development goals of economy and enterprises.