A Study On The Impact Of The Increase Of Labor Cost On Foreign Trade In Shandong Province

Export trade is a strong and powerful carriage pulling China’s economy growth andlow labor cost advantage is an internal drive element of foreign trade development in ourcountry. However, with rapid growth of economy in our country, labor cost continuesrising. In recent years, continuous rise in the minimum wage standard has happened innearly all provinces of China. At the same time, labor shortage is common in manyenterprises. All this mean low labor cost advantage that export processing enterprises relyon is gradually losing. At present, China’s economy is in transition and degree ofdependence of foreign trade is still high. Whether zooming labor cost will affectdevelopment of foreign trade, thus affect smooth economy transition is an important issuerelated to stability and persistence of China’s economy development in the future.Choosing Shandong province, one of the biggest provinces on population, economy andforeign trade in China as a research object, this paper mainly discusses two problems asfollows.(1) What kind of impact will labor cost rise produce on foreign trade of Shandongprovince and whether it reduces competitiveness of foreign trade of Shandong province?(2)Do changes in labor cost in Shandong province depend on ascension of labor productivity?First of all, in order to resolve the above problems, the paper sets up five actionmechanism systems of labor cost’s impact on foreign trade combining pertinent literatureincluding labor cost to economy growth to foreign trade, labor cost to labor productivity toforeign trade, labor cost to industrial structure to foreign trade, labor cost to inflation ofcurrency to foreign trade, labor cost to foreign direct investment to foreign trade. Then thepaper chooses one of the five systems that is labor cost to labor productivity to foreigntrade as a routine to thoroughly state how labor cost influences foreign trade.Later, based on the above system and choosing Shandong province as the researchobject, the paper sets up four econometric models including impact of labor cost on thenumber of foreign trade in Shandong province, impact of labor cost on the quality offoreign trade in Shandong province, impact of labor productivity on labor cost, impact oflabor cost on labor productivity and so on, to quantitatively analyze relationships betweenlabor cost and foreign trade, relationships between labor cost and labor productivity.The main conclusions are as follows.(1) Labor cost rise has great positive influenceson quantity and structure of foreign trade of Shandong province which will nearly notlower foreign trade competitiveness of Shandong province. Labor cost rise in Shandongprovince will play an important role in promoting growth of export and import. At the same time, it helps adjustment and optimization of the structure of foreign trade.(2) To acertain extent, labor cost rise in Shandong province relies on labor productivity, but thissupport is not too high. There exists long-term and stable relationships between labor costand labor productivity. After labor cost reaching a certain level, labor cost is positivelyassociated with labor productivity. But the role is not too high. After labor productivityreaching a certain level, labor productivity is positively associated with labor cost. Laborproductivity is sensitive to changes of labor cost. The effect has barely time lag and to alarge extent, it can digest the rising labor cost. So it is not necessary for us to worry itsprospect and we should obey the objective law and the inexorable trend. Different interestsubjects should look for different paths to calmly cope with the rising labor cost.Finally，on the basis of the above theoretical and empirical analysis, from the twodimensions including the government and enterprises, this paper explores policysuggestions to cope with the rising labor cost in Shandong province. In other words,because labor productivity is sensitive to changes of labor cost and to a large extent, it candigest the rising labor cost, so the two subjects should take steps to maximize laborproductivity to digest negative influences which are brought by labor cost rise.