Outsourcing Reduces Global Wages

[unlawflcombatnt]

Those who advocate pro-free trade often justify their position by stating a desire to uplift the poor in foreign countries. Not only do I oppose that position on nationalistic grounds, I question the benefits to 3rd world countries. Lack of benefit to 3rd-world countries is a point I'd like to make mainly with "liberals."

Outsourcing does NOT raise aggregate global wages. In fact, outsourcing labor costs to a low-wage country REDUCES global labor wages and income. If a $90/day American laborer is substituted for by $2/day foreign laborer, it reduces aggregate global labor income. Global labor income is what buys production and creates demand. Outsourcing reduces aggregate global labor income, thus reducing total consumer spending world wide. American workers lose income and buying power with outsourcing. That loss is NOT made up for by increase in foreign wages. This is just plain common sense. It's impossible for cost reductions to make up for wage losses.

If American workers can't buy America's production, then foreign workers need to pick up the slack. Does anyone really think that's possible? Can $2/day foreign workers make up for the buying power lost by $90/day American workers? That's $88/day/worker in lost labor income per worker. It would take the labor income of 45 $2/day workers to make up that labor income loss. Does anyone really think that'll happen? Of course not. The only benefit to anyone is the short-term cost reduction to American outsourcers, and a slight price decrease for American consumers. The numbers just don't add up. Global labor competition causes aggregate global labor income to drop. It increases the labor supply available to American corporations, and decreases worker bargaining power. This is simple supply and demand. If the supply of labor increases 100-fold, it will drive the "price" of labor down. Labor "price" reduction means labor wage reduction. Thus, the end result will be a dramatic reduction in American labor income, as well as a lesser reduction in global wages.

Outsourcing and globalization don't "raise" anybody up. It drags all workers down. Jobs will go to the most impoverished workers, and employers won't pay them a penny more than they have to. We cannot enforce minimum wage laws, or other worker protections in foreign countries. Even more important, however, is that Corporate America doesn't want to. Why would they? It would increase the price of their exploited foreign labor. The poorer the worker, the more willingly they accept poverty-level wages. Their impoverishment is Corporate America's gain.

Let's not forget that someone needs to buy the goods produced. Who will buy them if American wages drop to the level of their enslaved foreign counterparts? People can't purchase goods without income. And very low income means very few goods purchased. Demand cannnot be created out of thin air. Consumers must have sufficient income to create that demand. Without demand, there is no need for production, and no need to hire workers.

The entire world economy would collapse without the Demand created by American consumers. That demand is created by American income and borrowing. We're almost maxed out on borrowing at present. In addition, inflation-adjusted American wages are declining. They've declined 1% over the last year, and 0.5% over the last 3 months. The last thing the US and the world need is a further decline in American wages. American wage decline hurts the US, as well as the major exporting countries. If aggregate American labor & consumer income declines, so does our ability to buy foreign imports. Increasing American labor competition with enslaved foreign workers is worsening this wage decline. It's not only in our best interests to keep jobs in the US, it's to the advantage of all countries that export to us. We need income to buy their goods.

"Opening up markets" sounds like a good idea. But it's a smokescreen. It's not the real motivation behind "free" trade agreements. The real motivation is "opening up" the American labor market to competion with slave-labor. Bush and his neocon supporters know this. They hope we won't see it. Many of us do, however. Hopefully we can make others see this as well.

unlawflcombatnt

EconomicPopulistCommentary

http://www.unlawflcombatnt.blogspot.com

_______________________
Investment does NOT create jobs. It only "allows" for their creation. Increased Demand for goods creates jobs, because it necessitates hiring of workers to produce more goods. Investment "permits" job growth. Demand necessitates it.

Building a factory does NOT create jobs. Demand for factory production creates jobs. Goods are not produced if there is no demand for them. Without demand for goods, there is no demand for workers to produce them. Without demand, no amount of investment creates jobs.

[Massacure]

1. Everyone ends up on the same playing field eventually.

It doesn't matter if we make $90 or $2, as long as money is constantly flowing toward the middle class somewhere. That is why it is vital not to let corporations sit on large sums of cash.

[AP]

2. Yeah, I agree with that. Build up the middle class. If we get people

overseas from $2 to $10, they'll get political power, they'll want democracy and labor unions and government which take care of them. They'll take their wages to $20. Then they'll be creating their own demand, which perhaps Americans will satisfy, and then we'll move towards $60. Then we'lll get so much money in the middle class, we'll see big corporations existing not to increase profits for their insiders and managers, but to contribute to society. And then we'll have a global middle class that just competes on hard work, rather than cheap work.

[Hippo_Tron]

11. The get political power part of your plan is a bit more complicated

It's hard enough in this country (the supposed model of democracy for the rest of the world) to get political power for the middle class. Getting political power in some of these countries that we outsource jobs to isn't an easy task.

[AP]

12. Have you noticed the correlation between middle class wages and political

powerlessness and CEO wages and their political power?

Put money in the hands of the middle class and their political power increases. Put it in the hands of the CEOs and their's increases.

Same thing applies to countries overseas.

If people overseas are making 2 bucks an hour, but their employers are making 100 bucks an hour, well, political power is going to flow to the employers.

Do you know that in the average industrial company in the US that is being moved overseas, about 97% of costs go to materials and labor at a ratio of about 2:1, leaving only 3% profit for the owners of the companies.

In india, I bet the owners aren't settling for 3%, but if they did, everyone in India and the US would be better off.

[Hippo_Tron]

15. That is very true

But I'm just saying that there are a lot of other factors involved. If anything, this will all certainly take some time.

[AP]

16. I've wondered if the civil rights movement only became successful in

the '60s thanks to the wealth that FDR created for the middle class.

[unlawflcombatnt]

4. Outsourcing Reduces Wages Globally

I'm not sure you understood the point I was making. It makes all the difference in the world whether workers make $2/day or $90/day. If $90/day jobs are replaced with $2/day jobs, global labor income will be reduced. The replacement of those $90/day workers with $2/day workers reduces global labor income $88/day per worker. That'll cause a dramatic loss in aggregate world wages, and aggregate consumer spending. Labor wages will sink to those of the workers who are willing to work for the least amount of money, as a result of global labor competition. As a result, the sum total of world labor income will be reduced. The world's workers and consumers will have less money to spend, which will reduce world demand for goods and services.

Decreased demand for goods and services will further decrease the demand for workers to provide them. This will further decrease wages and aggregate world labor income. American worker wages will sink to the level of the lowest paid world workers. American workers will no longer be able purchase the lion's share of American production. This will greatly reduce demand for American production, as well as demand for imports. American industry, as well as those of the major exporting countries, will suffer as American wages decline. It is in the best interests of American business, American labor, and countries exporting to the US, to maintain American jobs. They provide the lion's share of the income that purchases their products. It certainly DOES make a difference whether workers make $2/day or $90/day. It determines how much income is available to purchase production, both nationally and globally. Global DEMAND drives economies, not investment. Reducing labor costs will not increase production, or demand for production. In fact, it will reduce production, because it reduces labor income, and the demand it creates.

unlawflcombatnt

EconomicPopulistCommentary
http://www.unlawflcombatnt.blogspot.com/
____________________________
Investment does NOT create jobs. It only "allows" for their creation. Increased Demand for goods creates jobs, because it necessitates hiring of workers to produce more goods. Investment "permits" job growth. Demand necessitates it.

Building a factory does NOT create jobs. Demand for factory production creates jobs. Goods are not produced if there is no demand for them. Without demand for goods, there is no demand for workers to produce them. Without demand, no amount of investment creates jobs.

[Massacure]

5. Damn, made a second post instead of editing it. :S Delete this one.

[Massacure]

6. So the company keeps $88 per hour per person.

That is why it is the job of the government to tax those incomes and move them back down to the middle class, or better yet, for the company to give back some of its profits in the form of service.

A good economy is judged by how quickly money flows, not by how much any given person has.

[NMDemDist2]

14. that's the point I try to make to my neighbors. It matters not if the

"goods" are cheaper if I don't have any income to buy them. With no jobs here, who is supposed to buy all the stuff?

The corporations have gotten mired it the "next quarter's numbers" trap instead of being focused on sustained growth at a slower pace.

just my $0.02, I'm no economist but it makes sense that if all the jobs (or even a large section of them) go overseas there will be no one with the disposable income to buy the products, no matter how "cheap" they are.

[unlawflcombatnt]

17. Outsourcing Reduces Global Wages

You've summed up my statement perfectly. Current economic commentary focuses exclusively on cost reductions. When those cost reductions come at the expense of labor/consumer income, there is NO gain. In fact, it shrinks our economy. Consumer spending drives everything. Less income means less spending. Increasing corporate profits at the expense of reduced consumer income is the path to an ECONOMIC ARMAGEDDON. The only economic "growth" under Bush has been the growth of government and consumer debt. Overvaluation of equities and real estate is not economic growth. It's simply artificial, debt-financed paper wealth, created by Bush's "alternate reality" economic policies.

unlawflcombatnt

EconomicPopulistCommentary
http://www.unlawflcombatnt.blogspot.com/
________________________________

Investment does NOT create jobs. It only "allows" for their creation. Increased Demand for goods creates jobs, because it necessitates hiring of workers to produce more goods. Investment "permits" job growth. Demand necessitates it.

Building a factory does NOT create jobs. Demand for factory production creates jobs. Goods are not produced if there is no demand for them. Without demand for goods, there is no demand for workers to produce them. Without demand, no amount of investment creates jobs.

[Dcitizen]

3. What's this study in macroeconomics and national accountings?

In macro economics, if import from job outsources I=$88 and result in
investment and savings I+S = -$88, tax T will reduce general at some .15 x $88. The GNP would reduce -$88 (1+.15)

In accounting, if -$88 in Assets of workers, then +$88 in Liabilities of corporations in private sector. It's true, but
-$88 in Liabilities of workers will result in -$88 in Assets of corporations, and then its consequence would be
-$88 in Assets of corporations. This corresponds with the adjusted price not only in labor but also for the products or services in the market equilibrium.

So the job out sources is simply to transfer the income of American workers to other countries. Therefore, the net income of workers is lesser, and the corporations clearly gain nothing, but the GNP will blow as much as the lose of income, savings and taxes from the workers. And looking at the result in three major factors of the economy then we know what happen next.

[unlawflcombatnt]

18. Outsourcing Reduces Global Wages

Dcitizen,

Thank you for your comments on my article. I think we agree, but I can't say for sure. Could you expand some on your explanation. Also, I want to make sure I followed your last 4 lines.

"Therefore, the net income of workers is lesser, and the corporations clearly gain nothing, but the GNP will blow as much as the lose of income, savings and taxes from the workers. And looking at the result in three major factors of the economy then we know what happen next."

I think you're saying GNP will slow as much as the loss of worker income, savings, and taxes. That makes since to me, but I'm not sure that's what you meant. (Did you mean to use the word "slow", instead o blow?)

unlawflcombatnt

EconomicPopulistCommentary
http://www.unlawflcombatnt.blogspot.com/
____________________________
Investment does NOT create jobs. It only "allows" for their creation. Increased Demand for goods creates jobs, because it necessitates hiring of workers to produce more goods. Investment "permits" job growth. Demand necessitates it.

Building a factory does NOT create jobs. Demand for factory production DOES create jobs. Goods are not produced if there is no demand for them. Without demand for goods, there is no demand for workers to produce them. Without demand, no amount of investment creates jobs.

[Pryderi]

7. Lou Dobbs says we're essentially cutting our own ecomonic throat.

Has anyone watched his series on outsourcing?

[unlawflcombatnt]

19. Outsourcing & Lou Dobbs

I've certainly watched his series. I should also point out that Lou Dobbs is not just a journalist. He has a degree in Economics from Harvard.

unlawflcombatnt

EconomicPopulistCommentary

[earth mom]

8. Excellent Topic and Post-Nominated!

The same can be said for Mexicans or anyone who comes to the U.S. and works for less wages than their American counterparts. This lowers wages for everyone in this country across the board. The racism card that is thrown at this issue is total B.S. It could be anyone coming to this country-English, French, German, Canadian, Australian, Asian, Middle Eastern etc. Good paying jobs are disappearing and they are NOT being replaced!

This is the issue that should make most Americans sit up and make them riot in the streets. But no one cares unless it happens to them. Hope it doesn't take The Great Depression 2 for the majority people to wake up to this colossal rip off! :grr:

[Mr.Green93]

9. Our standard of living is too high

and unsustainable.

[Hidden Stillness]

10. Who Are These People?

When I first started reading this thread today, I expected it to be a pretty standard, but informative, explication of the outsourcing/unemployment problem, with replies of agreement and maybe further evidence for the threat of the situation. It was shocking and disheartening to read the "sabotage" treatment it got right off the bat, only picking up at the end with two good replies (Pryderi #7 and TheGoldenRule #8), the entire thread being made up of almost total incomprehension of the issue. This is supposed to be a "liberal"/Democratic website, yet again, the pleas of the middle-class and poor are met with this total, crushing "rich investor class" response, like Bill Clinton and the corporate DLC telling us they "felt our pain," and then kicking us in the teeth and returning to their "fun" capitalist friends.

I don't know how the original poster feels at this depressing response, but I feel almost as if I don't know where I am or which group I am with. Does the official Democratic Party, and do the more active Democrats on this website and others, know so little about how the non-rich are being crushed by this economy, and how this might have tied together so powerfully as a larger, general, anti-corporate/corporate-crime statement, that it is just hopeless to try to get them to even listen to us? Are you all rich people? This reminds me, years ago, when the first Bush prick was "President" (CEO), a "reporter"--as they used to have then--asked Bush about a then-current Republican "plan" to give unemployed people tax credits, and the reporter tried to explain how that would not help: "..But President Bush, these people are unemployed. They have nothing." Bush refused to understand that people who are destitute do not cheer the capitalist's tax-cheat schemes. An Administration that will not determine its economic policies based on the needs of its poor and middle-class citizens, but instead on the drive for profits of its corporate donors, is killing its own people.

The global destruction of the world's middle class by employers, (soon to be known as "Your Highness" or just "Master"), reminds me of something I learned as a kid. Reading about New York City's beautiful Empire State and Chrysler Buildings, I was confused to learn that they had both been built during the Depression; I didn't know how they could have been, since "everybody" was poor. Even then I came to understand that capitalists want us to be poor, destitute, starving, and that rich people--needless to say--are never poor. They are never more free to exploit to the "mortal sin" extreme, than when the entire population surrounding them is poor, fighting for every job, and unable to complain about anything. It makes it BETTER for them when the economy is destroyed and there is total poverty.

From John Kennedy's Inaugural Address, Jan. 20, 1961: "If a free society cannot help the many who are poor, it cannot save the few who are rich."

[Gyre]

13. Isn't that the point?

While that swell of "less than minimum wage in America" money lifts boats in the third-world, it's a shitload less than they'd have to pay here so it leads to continuous skilled and non-skilled job hemmorhage here until we collapse completely from bending over backwards, or revolt.

Gyre