Cheap Foreign Labor Costs in the Context of Globalization: Perspective from the United States of America
Abstract
Globalization is clearly contributing to increased integration of labor markets and closing the wage gap between workers in advanced and developing economies, especially through the spread of technology. It also plays a part in increasing domestic income inequality. But erecting protectionist policies to stanch the forces of globalization is not the best response. Policymakers must instead focus on what can be done to help workers adjust to a changing world. We are very far from a global labor market, as evidenced by a wide disparity in wages. One study finds that the median wage for jobs in advanced countries is two and a half times the wage level for jobs with similar skill levels in the most advanced developing countries, and five times the level in low-income countries. In 2008, a Chinese manufacturing worker earned about one-twentieth the wage level of a U.S. manufacturing worker; a Mexican, one-sixth. Globalization is far from being the whole story behind the narrowing gaps; if wage convergence were principally the result of an integrating global labor market, one would see wages in the poorest regions of the world, rise much faster than the others. Labor markets around the world have become increasingly integrated over the last two decades, with the entry of China, India and the former Eastern bloc into the world trading system, the removal of restrictions on trade and capital flows, and rapid technological progress. Most economists believe that immigration has an overall salutary effect on the U.S. economy. An influx of labor from abroad increases the domestic workforce, allowing the economy to expand. Low-cost labor benefits consumers by keeping prices of many goods and services low. And gifted immigrants invent new products and found new businesses think Sergey Brin of Google and Elon Musk of Tesla Motors. The economic upsides of immigration are apparent in an analysis of the Senate immigration reform bill by the Congressional Budget Office.
Keywords: Cheap, Foreign, Labour, Cost, Globalization, USA
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