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The Trajectory of Global Wage Equalization

Economics / Wages Sep 23, 2013 - 02:06 PM GMT

By: Submissions


Keith Hilden writes: We are in a world in which our current governments, current monetary policies, current developmental policies, and current macroeconomic conditions are creating a new world in which wages will be set by skill, the ability to do the job, and productivity, rather than geographic location. A country's location on the globe is no longer a guarantee of the success of the inhabitants of that country, now that the globalized economy has arrived. This will further be achieved by the development of areas of the globe that as of now have largely missed out on economic development prospects. A CPA of equivalent ability and work produced in Africa will make roughly as much as a CPA in New York. A bus driver in Oklahoma City will make roughly as much as a bus driver in Tallinn, Estonia working the same amount. The ability to access these higher-paying jobs via higher education and training, and a solid educational foundation in their country of adolescence will still be a factor in separating higher wage jobs from lower wage jobs, but once anyone in the world is able to attain those requirements, they make roughly the same wages for the work produced, regardless of geographic location. Based on the trajectory the world is currently on, this will take a generation or so to occur. This is the track that governments and policymakers across the world have chosen our world to follow.

This change will not be without major social and socioeconomic tensions in high-wage countries who see their jobs systematically exfiltrated to lower-wage income countries. The following will explain the dynamics behind this shift, and to envision the endgame of an equalization of wages in the world, set by profession and productivity rather than national orientation or geographical location.

Why is Global Wage Equalization Occurring?

Currently, many high income countries are currently shedding full time jobs and replacing them with part-time jobs. This over the long turn lowers wages at the same time there is rising wages in the developing world. The force of wage arbitrage being the driver towards global wage equalization acts as an osmosis as wages flow from professionals in high-income countries to equally-trained and capable workers in low-income countries. The world has already seen much of this unfolding over the last 30 years, and particularly so in the last 10 years or so.

Not only the US is dealing with stagnant wages and replacing full time work with part time work. In Japan, the Haken-giri phenomenon has been unfolding over the last decade or so. During the early and mid 2000s when the global economy was in relatively good shape, the number of full-time, regular employees in Japan declined by 1.9 million, while non-regular temp jobs increased by 4.5 million. By 2008, contract and part-time temporary staff workers were more than 30% of the Japanese labor force. (Source: Wikipedia, Haken-giri)

Australia, too, is starting to experience its full time jobs replaced with part time jobs. According to the Australia Bureau of Statistics, part time employment in May 2013 jumped by 6,400 as full time employment shedded 5,300 jobs. Australia is a country with a population of about 23 million. Were Australia's population to be equivalent to the US population of about 316 million, Australia would have seen 72,000 full time jobs shedded in a month. Australia has seen a decline in full time jobs in 5 out of the last 7 months. While Australia's numbers in February and April have been robust enough to erase the losses of otherwise declining jobs, Australia has been seeing decreased commodity demand from China, a relationship seen as a core fundamental regarding the outlook of the Australian economy. Indeed, even the Australian government has realized that the employment figures to denote economic health is insufficient. The Australian Bureau of Statistics just came out this week with a statement that real unemployment is double the official government figure, when considering "discouraged" jobhunters, the "underemployed". Conditions for an individual to be considered employed in Australia are as lax as requiring only 1 hour of work a week. These "employed" workers with their underutilized labor raise not only Australia's official employment rate, but those of many other countries dealing with the outflux of full time work being replaced with part time labor opportunities.

Germany is experiencing a surge in part-time employment as well. German Chancellor Gerhard Schroder's Agenda 2010 program to get Germans ready for globalization has resulted in a shoehorning of Germans into part-time work. 1 in every 4 Germans took a part-time job in 2010. (DW) The underemployed and unemployed in Germany has hit over 10 million at times in a labor force of 43 million. (Atlantic Times) That is roughly 23% of Germans in the labor force who are unemployed or underemployed.

The redefinitions over recent years in what constitutes an "employed" individual across many countries in the world has resulted in a far rosier employment picture than is clearly evident in the labor statistics of high-income countries throughout the world. However, when plotted against the historical definitions of "employed", the statistics show a far deeper underutilization of labor in the world than the official government statistics suggest.

Africa Following in China's Footsteps

Landmark shifts in the world that has caused this exodus of full-time jobs from high-income nations to low-income nations hit a pivotal point in the 1980s. In China, in the mid 1980's, the CNY went from its historical norm of 2.5 CNY= 1 USD to over 8 CNY= 1USD, making Chinese offerings cheap enough to secure FDI and cheap labor for foreign businesses around the world. As the 1990s came along, the momentum created by FDI influx and cheap labor by design in China created a wave of development in China that was crucial to its modernization efforts. With China modernized to a decent degree in the 2010s, we now see this dynamic reoccuring in Africa. And similarly to China, it took over a decade of its efforts to bear fruit. Africa in the early 2000s, aggressively cut currency exchange rates in most of the nations in order to present Africa, just as China did before, as a destination for FDI and cheap labor.

The pattern of devaluation across Africa is striking. In the early 2000s, among 24 countries, 19 countries followed the path of aggressive currency devaluation, with the only outliers in Africa being those countries already relatively developed such as South Africa and Morocco, and that of war and conflict torn countries and their periphery: Djibouti, Sudan, and Somalia.

Just as it took over a decade of devaluation currency efforts in China to modernize the country to a certain degree, it likewise takes over a decade for the tool of currency devaluation to bring in FDI and utilize cheap labor to bring about the same effect we saw in China.

Just as the Chinese renminbi devaluation process in the 80's juiced the Chinese economy into multi-decade growth, African countries have already started this process. And more aggressively so, as the majority of African economies have devalued their currencies in the early 2000s far more than the Chinese did. Now, increasing amounts of FDI are coming into Africa just as what occurred in China.

Against the backdrop of full-time high-wage jobs being siphoned off to low wage countries in an almost osmosis-like process, policies in high-income countries are additionally being designed, with the end result (intentions nonwithstanding) of slowing down high-income economies in favor of letting less developed economies catch up.

As workers in these FDI and cheap labor juiced economies become better trained and more able to compete in the global job market, high wage countries become under pressure from increasingly higher skilled from lower wage countries. The end result- globalized wages, and the price of the hamburger in Tulsa, OK becomes the same price as a bowl of beef noodles in Zhengzhou, China.

The African continent is already well versed in English with countries like Egypt and Nigeria, and increasingly more skilled workers continue to put pressure on wages in high-wage countries. While towns and villages in Africa and India do not speak English or any global second language, the inhabitants in the cities of Africa that do will increase competition for jobs, and create downward pressure on wages, resulting in a lowering or stagnation of income in high-income countries, while low-income countries get juiced and employed via wage arbitrage advantages, closing the gap.

High-wage economies, long set with policies of easy immigration and foreigners having easy access to their lucrative job markets, are set to become more protectionist as the people realize that their job can be taken away by competitors all across the planet. International standards testing, such as the CPA and a new international BAR standard, further adds to the pressure of competition as more people from around the world enter these professions. Technology advances further equalizes the playing field in nations, and the access floor to desired professions is increasingly available to more and more people around the world. Those benefiting from the previous status quo of protected access to desired professions through the roadblocks of higher education requirements, superior technology necessities, and an established contact network and solid experience is blown out of the water by these new lower wage competitors. Osmosis of opportunity continues to diffuse out to areas where opportunity is more scarce, until the process ends and a degree of equalization among wages occurs.

Residents of high-wage countries will in this trajectory see their future stolen by the globalization process as cheap workers in far off lands increasingly take more of their work until the globalization process is complete.

Barriers Present Against Global Wage Equalization:

Language. Complex languages will be utilized as a barrier for entry to the labor market in that country, safeguarding to a degree jobs that cannot be undertaken due to that language barrier. Societies will use this as one of the last protectionist means against the competition created by globalization. Languages involving complex character such as Chinese, and languages with complex tone sets such as Thai will effectively be able to hold back a portion of the globalization labor flow at the gates of their country.

The smaller towns and villages of Africa mostly do NOT speak English. Language barriers slowing globalization means that these Africans that do not learn English or another language will continue to be left out of opportunities in the global economy. This will also be a lessening force upon global competition for jobs, as there will be less competitors in the pool competing for jobs.

(Lack of) Access to opportunity. Basic socioeconomic conditions that determine whether an individual has access to participate in higher wage labor opportunities still exists, acting as a wedge between the skilled and unskilled. While every individual in every country theoretically has a chance to join the profession that they choose, in reality access to that profession via a strong educational youth upbringing and ability to access a higher education institute will be the dividers in the global job market that separates skilled from unskilled labor, similarly to how is done today.

Legislation. Alongside increased adoption of Austrian economics and other new economic schools of thought comes the 99% Wall Street protesters and their spinoff groups that claim capitalism has caused the structural economic downgrade in the quality of life for Americans and others around the world, and thus must be abolished. Among these groups, the definition of capitalism is largely reduced to the meme of Wall Street banks and the strife they bring upon the people. There will be other groups that favor a regulation of the financial system that more adheres to American traditional norms of its over 200 years history.

In a way to preserve American values in a world on a trajectory to global wage equalization, Americans will demand legislation carried out that will safeguard American wages and American lifestyles. Veterans who came back from two wars overseas and disillusioned will not have felt that they fought to have their country lower itself to Chinese wages. This push-pull struggle of globalization vs. defending the Constitution and the American way of life will highlight the next 20 years in American history.

Legislation efforts will be fueled by groups arising to confront the financialization and the transformation of America into a commodity owned by a few and benefit to none, and demand tight regulations upon Wall Street banks. Other ideas that form call for the throwaway of top-down economics, as groups claim that top-down "trickle down" economics has only benefited the top, with the crumbs of economic excess thrown down to the rest of the American people. Ideas of a "People's Bailout" emerge and legislation is demanded to bailout the American people in order to keep them competitive and afloat as globalization continues to eat away at American worker's competitiveness. The idea emerges of legislating financial surveillance of Wild West-management Wall Street firms is proposed to keep an eye on waste, fraud, excess, and abuse of power. The American public, fed up with the disconnect in performance between the stock market and the general economy, calls for an exemption for US corporation earnings to be repatriated back to the US on the condition of a Invest in America requirement. In this idea alone, 1.9 trillion dollars is leveraged and incentivized to be redirected back into the American economy, fueling an American economy revival. All groups intersperse other ideas, such as a cap on banker's bonuses, a move towards a global equities and bonds sales tax, and generally structural ideas that intend to limit the power of the banking class in American society- again, a return to the historical norm of the United States historical trajectory.

By Keith Hilden

Keith Hilden holds a degree in Economic Crime Investigation and researches Asia Pacific and Cyber Security issues for Wikistrat. Send him mail.

© 2013 Copyright Keith Hilde - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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