How big a deal are recent wage increases? (Jun 10)

Big wage increases in China are stoking concern about inflation and corporate profitability. But they represent catch-up after two years in which wage growth was weak. Furthermore, double-digit increases should not in themselves be any cause for concern. Rapid productivity growth has allowed firms to withstand big wages increases in the past without damaging their margins or forcing them to raise prices. Indeed, rapid wage growth will be needed if China is ever to rebalance its economy towards consumption. Recent pay rises are a welcome step in that direction.