Friday, August 19, 2005

Free Trade in the US

"Free Trade" has to be one of the most abused terms in the world. The developed world often defines the term in a way that suits their purposes. Of course, there have been reams written about how the so-called proponents of free trade, the US and Western Europe often resort to illegal subsidies (Agriculture and Tobacco subsidies in the US for example) to make their products competitive, while simultaneously blocking imports of products from China and India (Textiles for example) citing "Dumping" and "GATT/WTO violations".

This facet of "Unfree Trade" has been discussed to death.

Another facet that receives little attention (I have not seen it mentioned anyplace) is how free trade in labor is being curtailed in the US. This is being done through the imposition of a minimum wage (Federal statutes set the minimum at $5.15/hour, with individual states setting their own floors - $7.25 in Oregon for example).

I believe that this is restricting free trade in the sense that it prevents workers who are willing to join the workforce at lower than minimum wage from being able to do so. There are several million people that are unemployed in the US and I believe that they would be willing to work at less than minimum wage. Would the ability to hire people at less than minimum wage keep more manufacturing jobs in the US ? I think it would. Of course, currently, this gap is being exploited (?) by immigrant laborers, primarily from Mexico.

There are two effects of offshoring work (IT/Manufacturing) - The rich get richer and the poor get poorer. The rich are getting richer because margins for US based companies are going up. The poor are going to struggle because their jobs are going overseas and they lose the ability to compete because of the artificial minimum wage. In a true free market, labor supply/demand would combine to define the minimum automatically.

And once this natural minimum goes below $5.15 (I think it already has), thats a point of no return for the economy.

Read this article ..... it describes how McDonalds outsourced its drive through window operations from Oregon to North Dakota because of the minimum wage differential. Next step, when $5.15 is too costly - A guy with an Indian accent asking you whether you want to super size your fries :-)


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