6/21/2004

The growing labor pool will drag wages down

This is the first in a periodic series about jobs going out of the country; how it affects workers here, and how it affects our position in the world. There has been much said about U.S. workers losing jobs. That the replacement jobs are not as good. That more skilled jobs, such as computer programming, are going out of the country too. That the whole situation puts downward pressure on the pay of every worker.

There are a number of points I will expand on in this series but here are the main points: 1. This outsourcing trend is built into our economy. 2. None of the typically discussed remedies will do much to help. 3. U.S. workers will suffer during this time. 4. It is vitally important that we demand the very highest standards for pay and treatment of foreign workers. This will do the most to ease the effect on U.S. workers. 5. There’s a good chance humanity is heading into a dark time. (I'll explain that conclusion in a separate series.) Mishandling how we behave as the world's employer will only worsen the effects on us.

To understand the first point, that this trend is built into our economy, one first has to understand a few things about how a free market like ours works (that is, a free market with large corporate players and access to a large, or even global, labor pool.)

The sometimes-better pay for low-level jobs that the U.S. has when compared to many other times and places, and the good sized middle-class we've had, are not what a free-market usually creates. They were brought about by influences outside the normal free-market system. Those factors are changing and we are reverting to the more normal result. That is, a very large number of workers earning low pay (the lowest barely able to survive no matter how many hours they work), a few in the middle, and a tiny number with astronomical wealth. It's historical. Look at the early years of the Industrial Age in both the U.S. and Britain.

For the most part, in this country, we're not going to get down to low-level workers starving, but that is what the free market will do if totally uncontrolled and there are too many workers. In the 1700s Adam Smith wrote "Wealth of Nations" and became sort of a patron saint of the free market. He said that if there are more workers than there are jobs that some will starve until the number of workers and jobs equalizes. It may be absurd to think of anyone in this country working for $1 per hour, but if the job can be sent to a country where many people live off scraps from the dump, they'll be glad to do it for $1 per day. Even in those countries there's a limit to how low wages will go because companies are only going to farm-out work to labor pools that have the infrastructure and stability to give reliable work. But you can be sure the work will be done at the lowest wages possible.

The current situation is that more population groups around the world are joining the global labor pool. Each time some country or region gears up to entice companies to use their people the total labor pool gets fuller. When there are more workers than there are jobs it puts tremendous downward pressure on wages and conditions. Already work that moved from the U.S. to Mexico to be done more cheaply is now moving to other countries to be done cheaper still.

The U.S. worker is no longer part of a U.S. labor pool but part of the global labor pool, with lots of people who find $1 per day to be better than their current lot. Even a truck driver, who's job can't be done out of the country, finds that many are unemployed or underemployed and would be willing to do his job for less. That puts downward pressure even on his job.

There are policies that can help to soften this, which I will cover. Next time, more about why the size of the middle class we had was not the norm.