Apple's Foxconn to double wages again

That’s the story coming out of Taiwan that Foxconn, the major supplier to Apple, is going to double the workers’ wages again. No doubt any number of campaigners will claim victory here but it’s almost certainly nothing at all to do with demands that Apple be “ethical” and everything to do with the economics of the situation that Foxconn faces. Taiwanese electronics manufacturing giant Foxconn will double the minimum monthly salary of its workers in mainland China by the end of next year, reports our Chinese-language sister paper Want Daily. Earlier this month in Shanghai, Foxconn chairman and president Terry Gou announced that the company’s salaries in China will exceed the minimum wage in Taiwan by the end of the year. Media commentators said this means that salaries will have to be increased from the current levels of 2,200 yuan (US$350) to 4,000 yuan (US$630), a rise of 82%. Sources now claim that Gou declared at a function on May 16 that simply catching up to Taiwanese wages is not enough, and that monthly salaries for workers in China should be doubled to 4,400 yuan (US$690) by the end of 2013. If the claim proves to be true, this would be Foxconn’s fourth announced salary hike in China in the last two years. It would also represent a near five-fold salary increase for the company’s 1 million workers on the mainland since 2010. There are two important pressures that Foxconn faces neither of which have anything at all to do with various student groups demanding that Apple force wage rises. The first is that there is actually a shortage of labour in some of the parts of China where Foxconn has facilities. The point is so obvious that even Karl Marx managed to get it right. When there’s a shortage of labour then capitalists will raise the wages they offer so as to give them the labour that they require: attracting it away from other lower paying employers. The second is that Foxconn is embarking on automating its lines. Terry Gou has said often enough that he wants to put in 300,000 robots in the short term and a million in the medium term. And the labour you need to run an automated factory is very different indeed from the labour you need to run a hand production line. Which brings us to Ford’s $5 a day wages again. This was absolutely nothing at all to do with creating a middle class who could purchase his products. Nor about his own workers being able to purchase his products. It was about reducing the turnover of workers. At the time Ford had a permanent establishment of 13,000 workers: but he was hiring and firing 50,000 a year to keep it that way. Doubling wages, most importantly paying higher wages than his competitors, meant that he hugely reduced that turnover. And thus the search and training costs of those workers. Terry Gou is following the same strategy. His factories are about to become a great deal more automated. This implies his needing higher skilled labour and his needing to do more job specific training of them when he gets those workers. He thus wants and needs to reduce the turnover of his workforce. Higher wages, higher wages than his competitors, achieves this for him. So we’ve two effects which are driving those Foxconn wages up and neither of them have anything at all to do with students getting into a lather about ethics. Quite simply there’s a shortage of labour so Foxconn needs to raise wages to get what it needs. Further, Foxconn is automating, meaning that they desperately want to reduce the costs of the turnover of staff. Paying higher wages does this. There’s nothing new in economics in any of this of course. As I’ve already noted, it’s so simple that Marx grokked it. You can look it up in any standard textbook under “efficiency wages”. The likes of SACOM and ethicaliphone might well get a nice warm glow out of this. As indeed do I: I’m just overjoyed at the idea that some million of my fellow humans are going to see their incomes rise. But the truth is that neither I nor the campaigners have had anything at all to do with this. It’s just the blind workings of economics: for it just simply is true that we know that industrial revolutions raise the wages of the workers and it’s also true that the only thing we know of that raises permanently the wages of the workers is an industrial revolution. Which is what we’re seeing in China, an industrial revolution: thus the wages of the workers are rising.