Falling Wages in the 3rd World?


>Stephen J. Fromm wrote:
>
>>Some claim that wages respond far less to demand for exports than one
>>might think.
>>Fourth paragraph of "There's Only So Much That Foreign Trade Can Do,"
>>Washington Post, Sunday, June 2, 2002, by Alan Tonelson (link at


  http://www.globalexchange.org/wto/20020610_137.html):
 
>>"Contrary to the view of globalization supporters and even some
>>critics, trade with the United States does not automatically provide
>>Third World workers with the keys to wealth and happiness. In a recent
>>survey, the Reston-based consulting firm Werner International Inc. has
>>compiled nearly a decade's worth of hard data on actual wages paid to
>>workers in an industry that is seen as crucial to Third World hopes
>>for industrialization -- apparel. Perhaps no other industry has
>>profited more from exporting to the United States. And yet the figures
>>show that there has been almost uniform wage meltdown in the apparel
>>industry in the Third World."
>>

Hi,

The article seems to presume that living standards in the 3rd world are
falling.  But that is contrary to all evidence, and especially the falling
birth rates.

"Wages" are not a good indicator of living standards, especially in the
3rd world and especially not the wage in a particular low wage industry.

This seems so obvious, but perhaps an example will illustrate my point: In
country X  1% of the people are skilled diamond cutters and earn $50 per
hour.  99% are subsistence farmers.  The "average wage" is $50 per hr and
most of the population is very poor.

A shirt factory opens and 10% are employed at $1 per hour.  The "average
wage" drops but more people are living better.  As more factories open the
average wage drops as ever more people leave the farm to work for wages.

Later, when  most are employed at $1 an hour (except for those diamond
cutters), the more skilled and educated advance to other jobs making $2
-$10.  So that shirt factory relocates to somme OTHER even poorer country
to keep labor costs at $1.  So the average wage in X now slowly rises (but
not likely to get back to the $50 at the start any time soon), but the
wage of shirt factory workers does not increase.

(And nowhere in the article does the author hint that people everywhere
have cheaper clothes as a result of this process)

From peter Lawrence:

>Jim Blair wrote:

.
> "Wages" are not a good indicator of living standards, especially in the
> 3rd world and especially not the wage in a particular low wage industry.

Here and in one of your other posts you show an understanding of some matters
Nassau Senior clarified in his early 19th century work on wages. But then you
miss this...

.
.
.
>As more factories open the
> average wage drops as ever more people leave the farm to work for wages.

That's actually bad, unless some further compensating things happen. The
thing is, total food production drops unless productivity rises. Yes, a true
free market, operating without shocks, would only let people off the farms if
capital came in to do that or if imports of food kept food supply up instead.
But on its own, a drift from the land in search of wages means food prices go
up too - and sheer demographics and inelasticity of demand for food means
that the gains in factory wages can't make up for losses in susbsistence food
availability. Of course, the actual losers are usually those who don't manage
to get into the factories, which makes the factories look good - but the
overall effect is harmful. UNLESS the other adjustments get made, enough and
fast enough.

And, oddly enough, historically these are just the sort of market
deficiencies you get - the sort that separate winners from losers as wealth
transfers concentrate the gains of progress, often arising from inadequate
institutions labouring under the new conditions. We had the English Enclosure
of the Commons, the Scottish Highland Clearances, and Irish Absentee
Landlordism. Who runs may read.


Jim Blair wrote:

Agricultural productivity in the 3rd world HAS been increasing. Mostly
because of technology imported from the industrial nations.  Much of
this because of new crop plants.  As in "Green Revolution".  India for
example had famine for centuries, but now exports food.

Peter Lawrence:
>
>Not what I was getting at. I agree, most of those things I mentioned as
>necessary to avoid the problems really are happening, so we don't get the
>problems - at least, not everywhere. What I was driving at was that your
>description was incomplete, leaving those necessary adjustments out of the
>picture.
>
>But your comments also don't apply everywhere; some places really do get
>problems. They are worse when the countries go in for cash crop production
>for export, ...

I agree that some places try cash crops just as the market for them drops.
Coffee is one good example.  Then they proved to be a "bad investment".
What good is a "cash crop" that you can't sell for some cash?

>
> Later, when  most are employed at $1 an hour (except for those diamond
> cutters), the more skilled and educated advance to other jobs making $2
> -$10.  So that shirt factory relocates to some OTHER even poorer country
> to keep labor costs at $1.  So the average wage in X now slowly rises (but
> not likely to get back to the $50 at the start any time soon), but the
> wage of shirt factory workers does not increase.
>
> (And nowhere in the article does the author hint that people everywhere
> have cheaper clothes as a result of this process)

Well, that's wrong. Not people everywhere - just the ones who didn't get
marginalised and did get on those rising boats being lifted.

Jim Blair:
 I see even the poorest people today wearing factory made clothes.
 Including New York Yankee tee-shirts and hats.

 ...
 Who makes their own
 clothes today except rich yuppies who want to "go back to nature"?

 Clothes used to be a big item in the budget, or else took a lot of peoples
 time to make.

PL:
> >Yes - and now, either they get them easily, or they don't eat either.
> >
> >
> >I suspect you don't know just how poor poor can get. I do, both from oral
> >tradition and from living in some of those countries. PML.
> >

 Where are there people so poor that they don't wear factory made clothes?
 And what do they wear?

>That's a let them eat cake. OF COURSE they have those issues. For instance,
>in Tanzania they typically wear hand made clothes made from factory produced
>cloth - it's CHEAPER.

Hi,

If they start from factory made cloth, they are benefiting from the textile
factories.

But even in Tanzania people get factory made clothes.

http://www.humana.org/Where_are_we1.asp?Country=Tanzania&CountryID=35

PL:
>
>But that doesn't mean they can always eat. Cloth is no substitute for food.

Food and clothes have different problems, as Roy has pointed out. You need
a constant supply of food, while you can use the same clothes for years or
even decades (as I do). And shirts don't need refrigeration.

And where do people not have enough food except
where the political situation is their problem?

PL:
>
>LOTS of places.
>For instance, in Madagascar the low end consists of migratory rice harvesters
>with practically no land of their own - they follow the harvests since that
>island has a climate range that means the harvest doesn't all happen at once.
>
>But see - that island also exports coffee and vanilla. What will happen to
>harvesters with no harvest, when exports increase? A flight to the towns,
>that's what. And what will they eat? Whatever they can pay for. And how will
>they get money? Ah.

jeb:

Famine was commonplace just a few decades ago, and in the 1960's 
Paul Ehrlich was predicting world wide famine by the 1990's.

It didn't happen that way.

>
>That's right. This isn't famine. Famine is the acute case; we are talking
>about people gradually falling off the edges in a slow thin stream.

??? What does THAT mean? Are the people in Madagascar starving to death or
not?  And isn't Madagascar an example of the political situation?
 
Isn't it clear that overall, people are getting better off everywhere
(with the possible exception of Africa)?  Aren't the falling birthrates an
indication of that?

PL:
>
>Well, no, they are NOT an indication of that. For old father Malthus, they
>would have been an indication of the things he called misery and vice - the
>misery being the pressures to defer marriage, and the vice being birth
>control (which people then abhorred).

So you say falling birthrates are not correlated with rising living
standards?  And has Malthus been very accurate at describing the 
last 200 years?


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