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The effects of rising labour costs on global supply chains: the case of China’s cotton yarn industry

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  • Ping Wang
  • Henry W. Kinnucan
  • Patricia A. Duffy

Abstract

Rapid economic growth in China and India has resulted in rapidly rising labour costs in those countries. In this study a Muth-type model is used to assess the potential effects of this development on global supply chains using China’s cotton yarn industry as a case study. The model considers i) product differentiation at the yarn level; ii) imperfect competition in the markets for cotton yarn and raw cotton fibre, iii) input substitution between raw cotton fibre, labour, and capital; and iv) offsetting increases in the demand for cotton yarn caused by rising consumer income. Results suggest the effects of rising labour costs on the supply chain are modest, and easily swamped or obscured by the effects of rising income. Increases in industry market power (both oligopoly and oligopsony) have the same effect on the supply chain as increases in labour costs, raising prices to consumers of cotton yarn, and lowering prices to input suppliers, including foreign suppliers of raw cotton fibre. The combined effects of increases in labour costs and income have increased the factor shares for labour and to a lesser extent capital at the expense of raw cotton fibre.

Suggested Citation

  • Ping Wang & Henry W. Kinnucan & Patricia A. Duffy, 2019. "The effects of rising labour costs on global supply chains: the case of China’s cotton yarn industry," Applied Economics, Taylor & Francis Journals, vol. 51(33), pages 3608-3623, July.
  • Handle: RePEc:taf:applec:v:51:y:2019:i:33:p:3608-3623
    DOI: 10.1080/00036846.2019.1584372
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    Cited by:

    1. Yuan, Hongyi & Liu, Yangxuan Liu, Jing & Liu, Jing & Escalante, Cesar, 2020. "The Impact of Chinese Retaliatory Tariffs on U.S. Cotton Industry," Conference papers 333193, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    2. Fromhold-Eisebith, Martina & Marschall, Philip & Peters, Robert & Thomes, Paul, 2021. "Torn between digitized future and context dependent past – How implementing ‘Industry 4.0’ production technologies could transform the German textile industry," Technological Forecasting and Social Change, Elsevier, vol. 166(C).

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