Nations, Industries and Households
Edited by Robert M. Solow and Jean-Philippe Touffut
Chapter 5: How Integrated are Chinese and Indian Labour into the World Economy?
Richard N. Cooper Wages of the median and of unskilled workers have stagnated during the past decade in many rich countries, including the United States, even while economic growth remained robust until 2008. At the same time, corporate profits excelled. An explanation for these widespread phenomena is that the effective world labour supply was greatly increased by the integration of China and India – the world’s two most populous countries – into the global economy as a result of changes in policy in both of those countries, giving encouragement to greater engagement with the rest of the world. Between them, China and India are said to have added over a billion workers to world labour supply, without a corresponding increase in the capital stock. Simple neoclassical economics would suggest a rise in returns to capital and a fall in wages of unskilled workers in the rest of the world. (To these two countries could be added the former Soviet Union, Eastern Europe and Vietnam, but the numbers of potential workers there are less dramatic, and skill levels higher; the focus here will be on China and India.) China and India are similar in many ways. Both are populous, physically large, socially diversified, economically poor countries. In 1978 they had roughly the same per capita GDP in terms of purchasing power parity (Maddison, 2001, p. 304). Their labour forces have very different characteristics, however. A significantly higher fraction of China’s population is in economic employment; China is much more urbanized; less of China’s...
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