The Effects of Cheap Labor on High Wage Countries; Does Cheap Labor Have an Adverse Effect on Other Countries
THE EFFECTS OF CHEAP LABOR ON HIGH WAGE COUNTRIES; Does Cheap Labor Have an Adverse Effect on Other Countries
By
Danny Welch
BUSN601 1004 Spring 12
In recent decades, trade has increased between high wage countries and low wage countries. The trade versus Gross Domestic Product (GDP) ratio has increased about 15% since the 1970s with countries associated with the Organization for Economic Cooperation and Development (OECD). This is with a trade openness ratio of around 40% for these countries. Smaller countries had a trade openness ration of over 50% in 2007. (OECD, 2009). Imports from low wage countries has put increasing pressure on unskilled labor markets. The wage inequality has been a topic of debate for some time and has had much empirical research conducted. One potential reason for the difference is the skill biased technical changes that have been experienced over these last couple of decades. Historically, trade from low wage countries has been small. a freer trade with countries of any income level will directly affect wages and employment, and may cause a disruption to high wage labor markets. (Krugman, 2000). China’s incredible economic growth accounts for the vast majority of growth with the US trade with lower wage economies. This increase in imports from China has not been matched by a demand need for exports from the US. The growth of imports from China is attributed to China becoming a more market oriented economy. The labor influx into the marketplace responsible for making the products were unskilled migrants from rural areas that came to the urban environment where they were exposed to many products that had been banned because they were from foreign markets. When the labor force is very mobile across regions, the export trade of a country may affect workers but not be identifiable in that region. With the growth to China’s economy, there was a shock on the labor demand in the country. Non-college workers are the lowest in the mobility
By
Danny Welch
BUSN601 1004 Spring 12
In recent decades, trade has increased between high wage countries and low wage countries. The trade versus Gross Domestic Product (GDP) ratio has increased about 15% since the 1970s with countries associated with the Organization for Economic Cooperation and Development (OECD). This is with a trade openness ratio of around 40% for these countries. Smaller countries had a trade openness ration of over 50% in 2007. (OECD, 2009). Imports from low wage countries has put increasing pressure on unskilled labor markets. The wage inequality has been a topic of debate for some time and has had much empirical research conducted. One potential reason for the difference is the skill biased technical changes that have been experienced over these last couple of decades. Historically, trade from low wage countries has been small. a freer trade with countries of any income level will directly affect wages and employment, and may cause a disruption to high wage labor markets. (Krugman, 2000). China’s incredible economic growth accounts for the vast majority of growth with the US trade with lower wage economies. This increase in imports from China has not been matched by a demand need for exports from the US. The growth of imports from China is attributed to China becoming a more market oriented economy. The labor influx into the marketplace responsible for making the products were unskilled migrants from rural areas that came to the urban environment where they were exposed to many products that had been banned because they were from foreign markets. When the labor force is very mobile across regions, the export trade of a country may affect workers but not be identifiable in that region. With the growth to China’s economy, there was a shock on the labor demand in the country. Non-college workers are the lowest in the mobility
References: Feenstra, Robert C., and Gordon H. Hanson. “Foreign Investment, Outsourcing and Relative Wages,” in Robert C. Feenstra and Gene M. Grossman, eds., Political Economy of Trade Policy: Essays in Honor of Jagdish Bhagwati. Cambridge: MIT Press, 1995. Krugman, Paul. 2000. “Technology, trade and factor prices.” Journal of International Economics, 50(1), 51-71. OECD (2007), Offshoring and Employment: Trends and Impacts, Paris (forthcoming), ISBN 978-92-64-03092-3, € 40, 189 pages. OECD (2006), Boosting Jobs and Incomes: Policy Lessons from Reassessing the OECD Jobs Strategy, www.oecd.org/dataoecd/47/53/36889821.pdf. OECD (2009), National Accounts, 2009