it fair to workers of developed countries when companies shift work to lower wage countries? The main reason companies shift work to lower wage countries is to reduce operating costs. Low labour, production, and energy costs in countries such as China, Japan, India, and Mexico is causing companies to shut their factories within the United States and open new factories in those foreign countries. This leads to the loss of jobs within the United States, a lower standard of quality, and resentment by those who are living within the United seeing more and more of their jobs going overseas.
In 1994, NAFTA (North American Free Trade Agreement) was passed by then President Bill Clinton. His goal was to open the trade routes to all countries. Unfortunately, it led to many plants moving across the borders to Canada and Mexico. While outsourcing had begun in the 1980s, it grew by leaps and bounds in the latter part of the 1990s. Jobs went overseas to China, Japan, and India and the economy began to falter as American’s lost their jobs and suddenly faced living on minimum wage as higher paying jobs went to these other countries.
By looking at the average annual salaries in these other countries, it is easy to understand why companies find it appealing to outsource their business. Especially in China where the average yearly salary is significantly lower than their American and European counterparts. • China – $1,290 • India – $14,500 • Japan – $17,000 to $50,000 (this depends on the region) • Mexico – $9,000 to $16,000 (this depends on the region) Outsourcing U. S. jobs to these areas are allowing many formerly poor areas to increase their standard of living.
Meanwhile, citizens of developed countries feel it is taking away from many families in those developed countries. Is it fair? Depend on where you live, it is not fair to the workers of developed countries when companies shift work to lower wage countries. However, companies are within their rights to cut cost to remain operable. The workers in the less developed countries are willing to accept a fraction of the salary the workers in developed countries like America are earning for the same job. Most jobs that developing countries are losing are service jobs.
Developed countries have the capacity and innovative capability to create new opportunities for its citizens. This means creating more skilled and technical jobs. A developed country such as America has an abundance of capital to their disposal. Factor Proportions Theory that countries like China and India with big labour force will focus on labour intensive goods, and countries like Sweden with more capital will focus on producing goods that are capital intensive. The theory is criticised when taken the following into consideration: 1.
Other factors – like minimum wage laws which leads to higher prices for relatively abundant labour – therefore making it cheaper to import rather than export. 2. Leontiff paradox – The United States makes export more labour intensive, this is due to the high tech products with high labour quality input rather than man hours of work e. g. level of education will also affect a country’s advantage rather than its scarcity or abundance. The prospect of losing millions of jobs to low-wage countries is not just an issue in Europe.
In the United States, Congress and presidential candidates have diverted their rage at China sucking away US factory jobs to threaten action to stop India sucking away service jobs: IT help desks, call centres, back-office processing of accounts. But why shouldn’t firms do that, when wages in India are far lower than in the US, and Indians need jobs too? In Australia too, manufacturers are wondering how long they can afford to keep producing here if the dollar remains so high against other currencies. Company boards may decide that much of Australia’s production should not be here either.
The evidence of what happens to developed countries under globalisation is still evolving: the issue was never really settled, and will not be settled for a long time yet. If globalisation is properly managed, it could be a powerful force for improving people’s lives in developing countries. Middle-income countries, too, are being hit. Mexico became the flavour of the month for US manufacturers in the ’90s after their free-trade agreement. Many US jobs moved to the maquiladores (assembly plants) across the border, and northern Mexico boomed.
But then the US discovered China. Suddenly jobs that had been sucked out of the US into Mexico were sucked out of Mexico into China. By last year Mexico had fewer manufacturing jobs than it started with; the flying geese had flown on. Developed countries have absolute advantage in various products and services. A country has an absolute advantage over it trading partners if it is able to produce more of a good or service with the same amount of resources or the same amount of a good or service with fewer resources.
Countries like America can continue to produce goods such as computers in which they have absolute advantage and exports it to those countries that specialise in the production of other goods or services. Conclusion Cost reductions from outsourcing can open up new market opportunities for companies and thus generate additional jobs at home. US companies are laying off in North America and Europe, but are actually hiring in low wage countries. Each of these companies primary markets are North America and Europe.
In order for those markets to recover the people within those markets need to be employed and spending money again. By shipping so many high paying jobs to low wage countries this removes capital, and morale from the target markets leading to lower consumption. This only prolongs and deepens the recession. Since the new workers in low wage countries earn far less and are less developed, their market cannot grow by the several thousand percent needed to match the losses out of North America and Europe.
The result will be many, many companies going under, a scenario where neither the lucrative markets, nor the low wage countries win. From an American citizen who feels it is not fair to workers of developed countries when companies shift work to lower wage countries. “Unfortunately, companies are not going to stop outsourcing work until Americans stand up and fight. Write to your local politicians, your federal government, and make yourself heard. Start boycotting companies who do outsource their business to foreign countries. To fight outsourcing, it is going to be up to those at risk of losing their jobs. ”