Race to the Middle

Our labor supply has seen a massive “virtual” increase in supply with the technological developments making the “globalization” of industry possible. No longer are companies tied to the labor force in the country they’re selling in – it’s very feasible to pull your labor supply from elsewhere.

Globally, this increase in labor supply is driving the equilibrium wage down in manufacturing jobs. While this isn’t the “race to the bottom” envisioned by anti-globalization activists, this market correction is essentially unstoppable at this point. Further, as we have found with some tech industry jobs, it’s not just unskilled workers who are facing this sudden increase in labor supply – and decreased wages.

It’s likely that the vast majority of sectors will experience this decrease in (real) wages save for those that require actual presence of workers onsite before long-run equilibrium is reached. While those who can command economic rent will still do well (it’s better to hire 1 great programmer than 10 good ones, to quote a recent /. article), this doesn’t bode well for the standard of living in the global North.

It’s worth noting that an economics professor of mine pointed out that while there’s been massive transformation before, it’s almost always resulted in an increased standard of living overall (though individual groups may be bigger winners or losers). That doesn’t contradict what I say above; I’m just stating that the global North may be on the “losing” end of the stick.

It’s also worth noting that this analysis changes the frame of the problem: no longer is it “Can we stop wage equalization?” but “How can we make this as painless as possible for the most people?”

Tags: economics, race to the bottom, globalism, free trade, nafta, cafta

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