Cheap Labor, Who’s Next?
I read an interesting statistic. In 2000 the average wage in China was 52 cents/hour. According to a different source, the more recent labor rates have risen to somewhere in the range of $1.20 to maybe $1.70 an hour. Still pretty low compared to the US where the minimum wage is $7.75 an hour.
In an agrarian economy where most people are working hard to get enough rice to eat in a day, making $1.70 an hour may appear be quite a benefit. For some multinational companies who can afford to deal with the logistics, making products in China might be a “no brainer”. Or it might be a big mistake.
Average wages in the US were “indexed” at $41,673 for 2011 by the Social Security Administration. That would be an average hourly earning rate of $20.43/hour. For workers in the “knowledge” industry who were making $50-150/hour writing software, your earnings have been “outsourced” to India where the labor rates are quite a bit lower. Highly skilled Eastern European electronic engineers, up to PhD level, are working for $55. an hour.
Where’s this all going? We are all competing for work. As work has migrated globally, we are forced to compete for that work globally. Emerging economies with low labor costs are able to compete, because even with the cost of transportation, their products are cheaper.
But this only works for high volume, commoditized products that are labor intensive. As technology content becomes more complex, the automated production required makes low cost labor markets less attractive. Except that in the recent past, the iPod, iPhone and iPad, and most cellular telephones, most computer parts, are being built in China with very low cost labor.
American Political Leadership over the last 20 years has taken a wrecking ball to American industry. Once the model of success in the entire world, we are on the verge of being marginalized by our global competition. Higher transportation costs and slowly rising labor rates in the cheapest markets are beginning to swing the tide back to US shores.
The examples of success in the US are companies that have completely transformed their business practices or invented an altogther new business that is not subject to offshore competition. New technology businesses, new classes of products, businesses that have constant improvement as part of their makeup, are harder to “clone” in offshore environments. Process breakthroughs, real innovations that lead to market leadership. These will be the hallmarks of the new economy.
Never underestimate what is possible.