This post from the New York Times Economix Blog is making the rounds (HT: David Skarbek, Steve Horwitz). It’s a really interesting story that discusses how life has changed for Bangladeshi women who have the opportunity to work in the garment industry. Are wages low? By Western standards, yes. However, the opportunities provided by Bangladeshi “sweatshops” have opened other doors. In particular, women are acquiring more education. Mark Perry argues that this is “One More Reason Wal-Mart Deserves [the] Nobel Prize.” John Tierney made a similar argument in 2006. The company certainly has a much stronger case than Barack Obama, Al Gore, or even Muhammad Yunus and the Grameen Bank.
In a related development, The Economist is hosting a symposium on rising Chinese wages. As Chinese workers become more productive, they are able to earn higher wages. I’ve written before that the law of comparative advantage is an anvil that has worn out many hammers. This is another case in point.
How much bad policy would we avoid if policy makers and activists understood that wages in competitive markets are determined by productivity rather than employer caprice? I wrote a Daily Article about this in 2008; the same article was recently translated into Swedish by LvMI-Sweden.
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The problem of higher wages is that it makes the workers less competitive. I heard India was losing outsourcing business to China because their wages more ‘competitive’.
How is that a ‘problem’? If it’s higher wage through higher standard of living and not through increased production/efficiency/quality, then yes.
The problem is that India loses those jobs. Their loss is China’s gain.
Wages have also been rising in China in recent years. The boom has created labor shortages. And China has been outsourcing work to places like Zambia, Cambodia and Vietnam.
That’s all to the benefit of American consumers. So long as our dollar remains strong we reap the gain of low prices on manufactured goods. And if the dollar drops low enough? We’ll just get our jobs back.
Exhibit A: The usual Mercantilistic fallacy that there are a fixed number of jobs available.
That’s simplistic and misleading, Seattle. When a work force ready to work for lower pay can do work equal in quality to one requiring higher pay, the force demanding higher pay will get crowded out. That’s true whether the total pie is shrinking, growing or staying the same.
Re: Gil,
Less competitive in what area?
So? Are Indians thus incapable of doing something different, all of a sudden?
How about: the problem of higher wages is that it makes the workers more expensive reducing the incentive to outsource as well as increasing the incentive to take your business elsewhere.
If Indians were choosing between poverty and outsourcing well . . .
That’s not necessarily true. Higher wages mean higher productivity, and lower wages mean lower productivity( generally speaking). The firm only benefits if the lower wage workers are more productive or at least equally productive. Secondly, higher wages mean a higher standard of living. That is never wrong.
The key question is how much has government worked with corporations to kick homesteaded farmers out of their, forcing them to work in sweatshops?
No one is “forced” to work there or anywhere. If they were, the media would be more than happy to cover the story to further their view of capitalism as a tool of oppression.
What’s forcing people to work is the need for food and shelter. In cases where someone is “forced” to work in a sweatshop, it’s the sweatshop that’s allowing them to survive, rather than forcing them to work. If it were really the other way around, then the destruction of the sweatshop would allow the people to avoid having to work.
You’re assuming a disconnect. A proper enquiry allows for the possibility that there might actually be a conspiracy or at any rate a connection, so that people’s need for such work is actually being created. Certainly when water is diverted to cash crops, subsistence farmers find their old resources failing – and then offers of work on the cash crops are “saving” them, but they wouldn’t have needed that if the cash crops hadn’t been there.
This is the obverse to my other reply; just as honest questions don’t rule out zero as an answer, they also don’t rule out non-zero. The only way to know is to look at the particular situations, not just make assumptions.
isn’t this all the more reason to privatize the commons (water, in this case)?
Its a multidimensional problem. Both of you guys are right.
Re: Matt Flipago,
Did it? Did they? Because if you cannot show they did conspire at all in the first place, then asking “how much” they did is asking a loaded question.
No, provided you realise that an honest question and a reliable way of finding out can deliver an answer of zero if it so happens that there was no conspiracy.
Truly an interesting blog! In my opinion I think a workers wage should be based on his attitude at work, if he is productive on what he/she is doing that I don’t see a problem if that person will be given a high salary as compensation. The true question lies on how workers should act to compensate for their salary. A good example on how workers should act can be found at a site I just discovered.
What an amazing video! Who would think that with a slight adjustment with my attitude I can be more productive?! In the past I always wonder why other people seems to be more productive compare to me. After watching Dr. Alex video at HowToBeProductive.com I realize what I need to do so that I can be as productive as my co workers. Thumbs up to this video!
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