The Negative Effects of a World Labor Force

Having foreign labor support domestic economies tremendously affects a country’s domestic labor force.  The obvious is when a major corporation moves operational services to another country. laptop_worldwide_connected_5154However, it is not just the major corporation doing this it is every business large and small.

A simple analysis is a web portal odesk.com the world’s largest freelance community of labor services from people all over the world. The extent of services offered covers more than 60 different categories ranging from web design to all forms of business services.

Some people might say this is a good thing.  A small business owner can find resources to help his/her business grow and using less capital to do it.  No business person wants to pay $25 per hour when you can find someone who will do it for $6 per hour and get the same result, reduce cost to help maximize profits, business 101.

While this is a good thing on the microeconomic level it is disaster on the macroeconomic level. Whether it is a large multinational corporation or a sole proprietor the same affects happen.  In America, we have a strong sense of individualism.  However, we are all dependent on one another to have a healthy society.

Excluding the survivalist most people specialize in something and collectively working together by trading products and services, (using a medium of exchange called money) we reap the rewards as if we did everything ourselves.  As an example, a coal miner provides coal to power electrical plants that power computers to provide services to business, individuals, and government, everyone contributing and everyone benefiting from the contribution.

Then two societies or countries decide they would like to trade.  As a child if you traded baseball cards you didn’t trade for what you had you only traded for what you didn’t have.  You collected duplicates only to trade for cards you needed to complete your collection of baseball cards.

However international trade is not just about trading for something you don’t have. It is also about trading for something you already have, and that is where the problems begin.  We have two closed systems who are going to intertwine, the end result is both countries should be better off, otherwise why would they want to trade (on a country basis not as a company).

On an elementary level this is what’s happening.  Business owners need web design services they select a company or person from a foreign country.  A young person in America is attending college for web design, upon graduation they would like to start a web design company.  They cannot find clients because the rate they need to charge is not competitive to foreign wage rates.  Trade is supposed to make each country better, what happened.

Why would a person learn a skill that they cannot sell for a price that enables them to survive and b2b_hand_shake_6834prosper in their country, they won’t.  As this keeps happening and grows here are the short term ramifications.  School loans that are not paid, credit scores destroyed, consumerism suffers with less first time buyers for homes, cars, furniture, appliances, and everything else a person needs to be totally independent.  Less people working means less payroll and social security taxes.

That isn’t just a young person’s dilemma, the over 50 years old labor force has also experience the foreign labor infusion.  They are now two old to work and too young to retire.  What happens they lose homes, consumerism suffers again, more importantly if possible, they depend on their children to survive who now have the additional economic burden of helping their parents.  This causes the children to reduce expenditures, reduced savings and curbs consumerism.

The long-term ramifications will result with most service sector jobs in highly developed nations will be ones that require a physical presence.  Remember trading with countries is supposed to benefit each nation.

Simple solution to the problem, just like we charge duties on products to equalize the difference in cost structures between countries, we need to impose duties on labor services, failure to do this will result in highly developed countries having a significant amount of its labor demand being supported by foreign labor.  While it is optimum for individual companies to seek out cheaper labor cost, this is not a good formula for a healthy economy or country.

Charging duties on imported foreign labor is not the only fix to the problem.  The reason companies seeking cheaper foreign labor needs to be addressed and resolved.  There is no reason why a company should not be able to handle the costs structure of their country, yet they can’t. Government regulation and social policy has many benefits but how those regulations and social policies are implemented is causing excessive cost, which force business to look for alternatives to reduce costs.