The Wage Rate and Globalization

VoxEU on the Euro and competition for capital:

"This analysis leads to the conclusion that if the underlying problem of Europe’s periphery were lack of competitiveness, it should relate to the types of products they export (vis-à-vis Germany) and not to the fact that their labour is expensive (their wage rates are substantially lower), or that labour productivity has not increased (it has significantly). The problem is that they are stuck in the manufacturing goods also produced by many other countries, especially the low-wage countries. Reducing wages would not solve the problem. What would an across-the-board reduction in nominal wages of 20%–30% achieve? The most obvious effect would be a very significant compression of demand. But would this measure restore competitiveness? We argue that it would not allow many firms to compete with German firms, which export a different basket, and in all likelihood it will not be enough to be able to compete with China’s wages." -VoxEU

This is more confirmation of the point that competition for capital along varying economies transfers market shares to economies which demand less labor compensation. This same process depresses the average for this and other standards across the board.

HT: Yves Smith at Naked Capitalism

Marx, wrong on one count

One of the preeminent aspects of Marxism is the conflict between the capitalist, who owns the means of production, and the producer, who is represented by the working class that executes the labor required to bring the commodity-value to the table. It is precisely this conflict of interests, the competition for the value this operation provides, that leads to working-class upheavals across the globe.


Marx noted the upheavals in his day, and suspected that a new class would soon rule over the means of production once these conflicts were resolved. In terms of the shifting of value to the hands of the working class, this indeed occurred across the globe during the innovation and industrialization of many of the high-infrastructure  societies of today - a feat that the expanded employment of labor helped accomplish. This expansion of employment has helped (or is helping) create an high rate of value-exchange: when high-consumption wages (lower class wages go primarily to consumption) are a large percent of income and total value('currency'), a greater sum of money returns to the consumer to augment aggregate demand.

India, Liberalization and Real Wages

VoxEU has a report arguing that liberalization has increased the productivity of industries in India:

• First, from 1985 to 1990, average productivity rose by over 8%, while the reallocation component actually fell by more than 6%, indicating that more productive firms lost market share to less productive firms.