In Shenzhen, located in the middle of China’s manufacturing heartland, about a quarter of a million workers are assembling electronic devices. These devices are made to be sold in Western markets. Foxconn runs many of these businesses. They make products for Apple and other brands. Foxconn employs one and a half million workers all across China. Foxconn has become an economic threat to both China and America. Their cheap foreign labour reduces enconomic growth to both countries.
The labour share of national income has been decreasing across the world since the 1980s. Countries affected include South Korea, Germany, Japan, Britain, Mexico and The United States. Labour captured in the Organization for Economic Co-operation and Development has fallen by 4% from the early 1990s to the 2000s. A decline of that nature was not expected. Economists saw the income flowing from labour and capital as fixed. This has helped top wage earners as their income has increased even though the labour share has decreased.
Workers in America blame the cheap labour for the slump in income. They have been proven correct according to research by Michael Elsby of the University of Edinburgh, Bart Hobjin of the Federal Reserve Bank of San Francisco and Aysegul Sahin of the Ferderal Reserve Bank of New York. They compared how much different industries in America are exposed to competition from imports and the decline in labour share in every industry. An increase in imports is correlated to a decrease in labour’s take. 3.3 percentage points of the 3.9 percentage point fall in the labour share in America throughout the past 25 years can be blamed on Foxconn.
Trade cannot be the sole reason for the drop in labour share. Workers in developing countries, which ranges from China to Mexico, have not been able to seize the benefits of growth over the past two decades. The OECD estimates that technology is to blame as well. They say technology is responsible for about 80% of the drop in the labour share among its members. Foxconn is now choosing to use technology to its advantage. Foxconn is going to add one million robots to its factories next year.
Many tasks could be automated with the use of robotics. Firms find it better financially to swap labour for software whenever possible. This has already caused a decline in the labour share by five percentage points. Governments may went to implement protection for workers in order to support the labour share. This may actually lead to more unemployment or an even faster shift from human labour to automated labour. Rising emerging-market wages may make trade less attractive, but this may also increase automation.
Foxconn needs to stop cheap foreign labour. They may be saving themselves money but they are hurting the country’s economy. Cheap foreign labour practices should no longer be allowed. Foxconn should keep the labour jobs within the country. At the very minimum, at least half of the labour should be kept within the country. This will help the labour shares in the United States. Technology may be helping the living standards for people but technological change is hurting the income from labour. But the living standards for wage and salary workers are also being made more difficult with automation spreading.

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