Wednesday, November 11, 2009

NY Times Makes a Case for Wage Slavery?

November 11, 2009
American Wages Out of Balance

American workers are overpaid, relative to equally productive employees elsewhere doing the same work. If the global economy is to get into balance, that gap must close.

Of course, workers in the United States should earn more than their peers in China, Moldova or Vietnam. Americans take advantage of the higher productivity that makes their country rich: better education and infrastructure, abundant capital and a strong work ethic. But how much higher should American wages be?

The answer depends in large part on two measures: the difference in productivity in making goods that can be traded across borders, and the quantity of such goods. Both measures point to a narrowing wage gap.

Many factors are raising productivity in poor countries. Fast development, cheap capital and more efficient shipping all help. Cheap communication via the Internet reduces costs and makes it easy to trade many more goods and especially services.

The global wage gap has been narrowing, but recent labor market statistics in the United States suggest the adjustment has not gone far enough.

One indicator is unemployment, which has risen unexpectedly rapidly. The 7.3 million jobs lost are more than triple the 2 million during the 1980-82 recession. Some of that huge increase reflects the sharp decline in gross domestic product, but there could be another factor: the recession shows that many workers are paid more than they’re worth. Another possible sign is the huge surge in reported productivity, which has begun while output is declining. That suggests that some production is being outsourced, often to lower-paid foreign workers.

The big trade deficit is another sign of excessive pay for Americans. One explanation for the attractive prices of imported goods is that American workers are paid too much relative to their foreign peers.

Global wage convergence is great for the poor but tough on the overpaid. It’s possible to run the numbers to show that American manufacturing workers should take average real wage cuts of as much as 20 percent to get into global balance.

The required cut may be smaller. But if American wages get stuck above global market-clearing levels, as in the 1930s, the result could well be something approaching Depression-era levels of unemployment.


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