Registered: Aug 2010
10-15-12 09:19 PM
Quote from StarDust9182:
Relative labor cost is another factor. When a country has over-priced labor relative to their world compared productivity, higher unemployment rates are sure to follow eventually. COLA clauses are attempt to build in inflation in wage and ignore the basic cause - over paid labor.
As unskilled labor becomes cheaper partly due to smarter robotic workers (no COLA) and overseas production, and the army of unskilled grows due to poor teaching quality, there are more poor. However, in a consumer economy, an increase in the poor leads to less purchasing and relative GDP, leads to more unemployed, leads to ....
I have heard that an invisible hand will simply re-adjust to employ workers in a new area. But not if there is no consumer demand. I guess the plan is to employ everyone in the government eventually. Shades of 1984!
I completely agree. I have first hand experience with "wage arbitrage" and many freelancers can testify to just how competitive this force has been and will continue to be. Third world countries with the skillset to complete projects in a variety of fields will do the work at sometimes 10% of the cost if a project is bid to Western economies.
It's also why so many of us get irate when we see just how completely out of touch the public sector is...Teachers marching around, striking, demanding full benefits, defined benefit plans, healthcare for life, etc, etc...Meanwhile, most of these kids would be better off just watching videos from an assortment of online educational vendors and saving the states billions of unfunded pension liabilities.
Obviously, as you stated above, it's a vicious circle. Lower wages, less consumption, less tax revenue, further erosion of state budgets, etc, etc...But at the same time, what we have now is a bi-furcated economy where the private sector eats the losses, pays for the subsidies via ZIRP and loss of interest income, absorbs property tax increases as further subsidy of the public sector, etc, etc...
Meanwhile, globalization ensures that many businesses will either outsource contractor's or simple re-locate entire divisions to avoid the excessive regulation and/or taxation of their end user economies.