According to Michael Snyder who is editor of theeconomiccollapseblog.com and his article entitled The Middle Class in America Is Radically Shrinking. Here Are the Stats to Prove it. Click on it to see it. The basic gist of the article is America can’t compete with the low cost of overseas labor, so we’re losing jobs. People are out of work longer, wealth is being accumulated by a small group of super rich people and the middle class is moving into the poor class. I think that about sums up the article and, I think, the article is right on the money. Excuse the pun. So much for the “world economy”. Maybe those anarchists are on to something after all!
I had an idea a long time ago about equalizing labor costs throughout the world with a labor tax that would be imposed on U.S. companies moving their operations to foreign countries just because the labor costs were lower. The tax would have in effect equalized the labor costs. So if a company wanted to move out of the U.S. to avoid paying workers $30 an hour to a country where it can pay workers $1 an hour, it would be taxed $29 per hour per hour worked for each laborer. So with labor costs equalized, the company would be moving out of the U.S. for reasons other than lower labor costs. Like lower costs of raw materials, or building something in the country the product is sold in to reduce shipping cost, and so on. So, hopefully this tax would have kept companies here, but guess what? They’re all pretty much gone! Could it get any worse? I guess things can always get worse with more companies relocating, but I think there’s a more even handed way to equalize labor cost around the world.
How about a “cost of labor tariff”? The costs of imports coming into a country would be adjusted by the cost of labor in the exporting country. So if labor is $1 an hour in China and they’re are shipping products to the U.S. where the labor cost for producing the same product is $30 an hour then the price of that product is going to be going way up. I can hear you now. Tariff? Trade wars. Everybody loses with that one. But what if the “cost of labor tariff” was a U.N sanctioned law and was adopted around the world by all countries? Or at least by all developed countries that have labor unions. I would think that the Teamsters would love a law like this. It protects high priced labor (America, Europe) and at the same time maybe it would even encourage cheap labor countries to up their pay scales. A win for labor, but not so good for the consumer since they would undoubtedly be paying higher prices. But where would all the tariff revenue be going? It could be used to lower personal taxes, so the consumer would still have money to spend. So the “cost of labor tariff” would just be a way to redistribute wealth by equalizing labor cost throughout the world.
The flaw in this approach is that it would encourage already high labor cost countries to go even higher. To put a brake on this, a worldwide benchmark of labor costs should be used. Doing this by job would be a daunting task. It would be somewhat easier is it were done by industry. So, let’s say on a worldwide average, 100 man hours were needed to make a car and the average per hour wage for an autoworker worldwide was $20. Lets say the average auto worker in the U.S. makes, with benefits, $70 an hour, France $50 and China $1. If the average worldwide labor benchmark for autoworkers is $20, then China would have to pay $1,900 for every car it built and shipped to the U.S. and France. China can get around the tariff by increasing the amount it pays its autoworkers. What if the U.S or France wants to sell their cars in China? Good luck! Or they better start building them in China to sell to the Chinese. But they’re already doing this. As a matter of fact, GM now sells more cars in China then in the US!
Ahhh, the tariff game. It messes around with the free market system, but the inequities in labor costs are profound. It should hurt to be at the bottom of the labor cost ladder. You want those countries to improve the standard of living. But it should hurt somewhat to be at the top too. I think unions cause this problems in more developed countries. Case in point. The town I used to live in in Illinois had budget problems like many towns across the nation during the recession. It was announced that all non-union workers wouldn’t be getting a raise in 2009. The police were scheduled to get a 2% increase and were asked to forgo the increase. They said no. When the budget crisis grew bigger, they were asked if they would like to all take furloughs days, splitting the cost reduction among all members of the force, or have layoffs. They chose layoffs because there was no way anyone was going to go backwards on the pay scale. So much for the free market system when it comes to labor costs and unions. That’s not to say that labor costs haven’t moved down during this recession. The car industry when faced with extinction made the unions come to the negotiating table. And I’m sure a lot of non-union companies decreased wages when it was a matter of survival. But there is a lot of people out of work and that’s because there are no jobs. Those jobs have gone overseas. How will we ever get them back? Labor tariff, anyone?
