The wage squeeze and the wealth gap

Cheap labour and the opportunity to exploit new markets have made companies (and their executives) much wealthier. However, white-collar and blue-collar workers in the richer nations have not seen their wages rise.

by FT magazine

In fact, they have the level of wage increases one would expect in a recession. One of the reasons is the new access business has to the world's labour force. A Harvard economist estimated that the entry of China, India and the Soviet bloc doubled the number of workers in the market economy from 1.46 billion to 2.93 billion.

People also assumed that the new economies would not produce hi-tech industries. This has turned out to be wrong. China, for instance, is due to produce more science and engineering PhDs than the US in four years and is developing strengths in nanotechnology.

The rise of workers in the global economy and the potential to export jobs to cheaper labour markets has helped to suppress wages in the West. Whilst people in the developed world have access to cheaper goods and can benefit from rising share prices (often through pension schemes), the rich benefit far more while poorer workers in the developing world also experience rising living standards.

Consumer spending has held up in the West because rising house prices have made people feel richer. Also, more spouses and partners have taken jobs or have worked longer hours.

Source:
Profts of doom
Richard Tomkins
FT magazine, 14/15 October 2006

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