Consequences of Globalization: Why Globalization will push wages lower in the United States

Corporations by their very nature will always try to minimize their costs and improve profits for their shareholders. Period. This is their mission. It’s in their DNA.

Manufacturing companies will try to find the cheapest source of raw materials. In service-oriented companies, labor is the biggest expense and thus the incentive to reduce labor costs is huge. Businesses thus will always support liberal immigration rules so they have a ready supply of labor. A large supply and you can prevent labor costs from rising, higher margins and happier investors. Governments closely allied with businesses, as in the US, will try to facilitate business success by proposing more immigration. But legislators are beholden to their constituents and prefer instead to have a smaller labor pool (likely dictated by unions) and that wages rise, so their constituents generally feel the country is moving in the right direction. Thus you can always expect a tussle between Government and businesses on one side and legislators and workers on the other.

To feed the blazing economy in the mid 90's, business leaders were able to convince government to increase the H1-B quotas, so that more skilled workers could come into this country. With the economy firing on all cylinders, criticism was muted as everyone was making money. It is always easy to be philanthropic when your net worth is rising. But with the bursting of the bubble, erosion of equity wealth and a simultaneous loss of jobs, immigrants quickly lost their welcome. Letters in the newspapers give even educated folks to dis immigrants and the 'jobs they are taking away.’

In a recessionary economy, companies still need to get their work done and the impetus is higher to reduce costs more significantly. The internet provided the opportunity to out-source services, even to off-shore locations and reduce costs dramatically. This definitely reduces costs and even meager profits look dazzling. Since many jobs are lost as a result of the new found profits, and newer jobs are not yet being created locally, the economic recovery remains muted. Businesses have a reduced ability to raise prices and inflation remains low. In this environment perversely, further profits will have to come from further reducing costs. Productivity gains also translate into lower costs since a reduced work force is required to do the same amount of work. Workers experience this first hand in the form of longer hours and curtailed vacations. Is it surprising then that companies have pushed productivity increases from ~ 4% in 2000 to nearly 9% in 2003? (numbers are based on recollections and may be off). This is the only way to improve profits. If the economy stays in a ho-hum range where are future profits going to come from? Reduce labor costs further!

The President’s Office announced last week that they want to provide opportunities for illegal immigrant workers to gain lawful employment and ‘get back in the system.’ This will only benefit the low-end worker. Under this policy, you are only eligible to work in the US for three years and have to return to your native country. What a beautiful way to keeps wages low. During the initial years, immigrants are not able to negotiate higher wages, and by the time they figure out how, or develop the skill sets required for higher pay, they have to return to their country.

You got to give it to the schemers. The President gets the Hispanic votes and businesses are happy!


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