I don’t understand how this conversation is had without ever mentioning the effects on aggregate demand. Relying on cheap labor, foreign or domestic, means that less money ends up in the cohorts who spend most of their income which in turn generate demand for stuff. Therefore while cheap labor might help the bottom line of company A or B, it decreases the overall money that goes around to buy things, including their own, in other words decreases the aggregate demand. Which makes company C look for labor cost reduction. Which further depresses aggregate demand. And so on, down the standard of living spiral.
I was thinking about this yesterday, I have a feeling that the value of labor of an auto worker that makes the same car in the US, Canada, Mexico and China is all the same. That value however is mispriced for various reasons which provide opportunities for capital owners at various parts of the system to pocket the difference. 🤔
I don’t understand how this conversation is had without ever mentioning the effects on aggregate demand. Relying on cheap labor, foreign or domestic, means that less money ends up in the cohorts who spend most of their income which in turn generate demand for stuff. Therefore while cheap labor might help the bottom line of company A or B, it decreases the overall money that goes around to buy things, including their own, in other words decreases the aggregate demand. Which makes company C look for labor cost reduction. Which further depresses aggregate demand. And so on, down the standard of living spiral.
And exporting labour to developing countries appears to help until you step back and realise just how wide ranging the issues are.
Competing on price alone is always a race to the bottom - the value of labor is no exception.
I was thinking about this yesterday, I have a feeling that the value of labor of an auto worker that makes the same car in the US, Canada, Mexico and China is all the same. That value however is mispriced for various reasons which provide opportunities for capital owners at various parts of the system to pocket the difference. 🤔