During the 2016 US Presidential campaign, one of the interesting declarations was Mr. Trump’s repeated statement that the Chinese were stealing American jobs. As a Chinese, I would like to take it as a compliment instead of an accusation. I see it as the Chinese labor market is more competitive and attractive than that of the US or most other countries in the eyes of the investors. Otherwise, Mr. Trump would have said that the Indonesians or the Filipinos were stealing their jobs.
Cao Dewang, the owner of a Chinese company, Fuyao Glass, who has invested in the United States, once pointed out that one of the drawbacks the United States presented to its investors were the influence of the trade union. A strong trade union influence makes the United States less attractive to foreign and domestic investors, so instead of accusing the Chinese of stealing American jobs, Mr. Trump should have looked into the reasons behind this phenomenon.
A trade union, also called a labor union, is an association of workers created to improve pay, benefit, working conditions, or social and political status through collective bargaining. Trade unionism originated in the 19th century in Great Britain, continental Europe and the United States. Since the Industrial Revolution, unions have often been credited with securing improvements in working conditions and wages. Labor leaders formed many unions in manufacturing and resource companies, such as steel mills, textile factories and mines. Over time, however, unions have spread into other industries. Today, a large portion of union membership is found in transportation, utilities, and government.
The power of labor unions rests in their two main tools of influence: restricting labor supply and increasing labor demand. Through collective bargaining, unions negotiate the wages that employers will pay. Unions ask for a higher salary than the equilibrium wage. According to the US Bureau of Labor Statistics, union members have higher wages and salaries than non-union members.
It is no doubt that the creation of labor union is a triumph for the working class. It uplifts the disadvantaged position of each and individual employee by joining them together in a collective pursuit of better pay, benefit, or working conditions. It has contributed to the well-being of union members and the improvement of social justice.
However, as each coin has two sides, what is the other side of a trade union? At least one thing is notable; trade union makes a nation less attractive in the eyes of investors. Newcastle University found a strong negative effect of trade union density on inward foreign direct investment by examining panel data for 19 OECD economies. The paper finds strong evidence that a high level of union density reduces the incentives for a multinational enterprise in selecting a country as a potential location for foreign direct investment.
As mentioned above, trade unions can negotiate higher wages and salaries. Still, a less attractive labor market reduces the potential demand brought by foreign and domestic investments, which will offset the expected benefits of unions’ efforts. Foreign companies will locate their new investments in countries where the union influence is less, and domestic businesses will relocate their operations in countries where the overall labor market is more attractive. As a result, a nation’s total demand for jobs will decrease, increasing the unemployment rate.
A comparison of unemployment rates between China and the United States for the last two decades have found out that the unemployment rate of the United States is higher than that of China. Although there are many reasons for this outcome, the influence of labor unions could have contributed to some extent, for China has no typical labor union influence on the investors. The Chinese labor unions do not organize collective bargaining for wages against the employers.
China is a communist country and the ruling communist party proclaims itself as a labor class party. So, is the Chinese Communist Party abandoning its roots and becoming a pro-capitalist party allowing the capitalists to exploit the working class? The answer is No. The labor union policy is just one among many other pro-investment policies, like relaxed labor law enforcement, less strict environmental compliance, cheaper land cost, and tax incentives, that attracted foreign investments at the early stage of China’s economic reform.
The government believed the higher wages and better working conditions would come from the development of the economy. Foreign investments played an essential role in this process. With the help of foreign investment and many other contributing factors, China has seen rapid growth over the last four decades and lifted itself from extreme poverty to become the world’s second-largest economy. And even without the collective bargaining of labor unions, the average household income increased by 22.8 times compared to four decades ago.
China has given a different answer to uplifting the overall improvement of the working class’s pay and working conditions by developing its economy and creating a pro-investment society. So, does it mean that the Chinese government will forever ignore the benefits labor union can bring? The answer is No again. In line with its new industrial policy of shifting to science and technology-intensive industries, the Chinese government has tightened environment compliance, emphasized the enforcement of labor law, and empowered the labor union to protect the right of the working class. However, Chinese labor unions will not have the same functions as typical labor unions in other countries.
A nation’s labor policy, including functions of labor unions, should consider the nation’s current economic development status and be in line with the nation’s industrial strategy. For developing economies, a relaxed labor policy will make the country attractive for investments, which will help build the economy and improve the overall income of the working class, which is the same goal and purpose of trade unions. In this new era of world economy shift, less developed countries might need to rethink their labor policy to be better prepared to “steal” jobs from other countries.
The author is an MBA student at the Ramon V. del Rosario College of Business, DLSU. He can be reached at xudong_wu@dlsu.edu.ph.
The views expressed above are the author’s and do not necessarily reflect the official position of DLSU, its faculty, and its administrators.
