Friday, May 28, 2010

The True Cost of Labor

(fm the BC thread "Ye Olde Shell Game")

The problems are not only the cost of regulation that drives away skilled jobs and the cost of labor that drives away unskilled jobs. The third component of the engine of economic destruction is cultural. American low skill labor is unemployable at almost any wage rate. It does not cost the $1/hr a more motivated and skilled worker in a place like China or the $2 a worker in India costs to employ an American, it does not cost the $7/hr that people think after looking at the minimum wage rate. It does not cost the $15/hr or so that some can calculate, I have not gotten the exact numbers but they are out there, after adding in mandated regulations and benefits. The actual cost includes the wages of all the Supervisors and EEO counselors and Lawyers needed to follow around the low skill American worker and get them to do anything without putting the company out of business.

Under those circumstances the added costs of translation, coordination and shipping needed to move manufacturing overseas become no barrier. The costs of moving overseas are predictable and decline over time. The costs of remaining in America increase over time. The only industries that cannot move offshore are agriculture and mining, including energy extraction. The former is composed of less than 2% of the workforce and that is under pressure from inheritance taxes. The latter is being eliminated by environmental regulations. The difference between America and the 3rd world commodity producers in 10 years may be that they can generate income by exporting commodities while we refuse to. My expectation however is that by that time the Chinese will have gained control of the extractable resources and we shall see the regulations relaxed.

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