A chronic problem for the American worker is competition from cheap foriegn labor. The minimum wage in China, for example, is set by local governments, who presumably compete for new factories, and varies from $45 to $100 a month. Chinese companies must therefore pay 25 to 50 cents an hour for a 44 hour workweek.
But the problem is much worse. China has no meaningful overtime or minimum wage enforcement mechanism. The only pressure applied to Chinese suppliers is the threat of an audit from its customers, such as Walmart of Nike. That does not appear to be much of a threat, however, as today's lead story in BusinessWeek reveals. Chinese suppliers reportedly fake pay records and "coach" employees to lie to auditors. Even then, an industry watch dog group found an average of 18 violations at every single factory that it audited, despite the presence of a new industry of consultants in China who help suppliers fake documents and coach employees.
This creates a trifecta for minimum wage and overtime violations. First, no laws means no penalties beyond a loss of business. Second, coverups assure that most violations are not caught. Third, "coaching" is nothing more than a threat of termination if the employee speaks the truth. This is retaliation in its purest form.
Compare that to Ohio, which just amended its constitution to require an inflation indexed minimum wage. Ohio's constitution now also requires mandatory employer recordkeeping, allows class action lawsuits and requires an award of damages for retaliation in an amount sufficient to deter future violations.
U.S. trading partners must enforce their minimum wage and overtime laws and prohibit falsification and retaliation. If they choose not to do that, then U.S. tariffs should adjust the price of the goods coming in to recover the reduction in the price of the goods resulting from the violation of the rights of Chinese workers.
