In my other blog, I wrote a short piece
on the increasing dispaity of income in the West, and my colleague Ahmad
, did a similar piece on the same issue. In this post, I wish to take this issue a little further.
It could be said that one source of increasing poverty in the rich economies is the way in which the labour market is being adjusted under global pressure. It is broadly argued that demand for skilled labour is rising leading to higher wages, whereas demand for unskilled, and semi-skilled workers is falling. The result of which is a fall in the real wages
earned by these groups of workers.
However, it is this fall in demand for unskilled and semi-skilled labour whi
ch explains greater wage disparity. It is further asserted that the speed of technological change combined with reduced opportunity for retraining de-skills an increasingly larger segment of the labour force, especially at the lower end of the skill ladder. To put it differently, in relative term, the distribution of workers between these groups is changing too. Combining these two, we have the following situation.
In the first diagram above:
The initial situation is given by:
OS supply of skilled labour working at OE, its share of total value created is given by OebS
SO’ Supply of unskilled labour, working at O’w, its share is given by O’waS
Under pressure from globalisation: SS’ is de-skilled.
Demand for skilled labour increases from D to D1, but demand for unskilled workers fall to d1.
Under the new situation:
OS’ Skilled labour, working at Oh, its share OhcS’
Unskilled labour increased by SS’, demand fell to d1.
O’S’ Unskilled labour, working at O’q, its share S’vqO’
Here comes outsourcing.
Methaphorically speaking, O’q is too high, and at least, some of these jobs are outsourced. We would face the following situation [ in the second diagram].
In this situation, S’S’’ represents unemployment among the unskilled and semi-skilled. In the above, I am assuming the skilled labour will not be out-sourced.
The question is, outsourcing maintains production but reduces further the size of the market as those who replace these unskilled Western workers are paid a fraction of their wages. What would be the implications of this type of relocation in the global, should be the subject of another post.