Global Labor Oversupply

What has been missed out by economists worldwide is that capital is now heavily advantaged over labor which is leading to massive inequality around the world. The reason is that Labor both educated and unskilled has risen exponentially, with structural changes like the Internet and growing prosperity in large labor pools like India and China. This has given rise to the phenomenon of white collar poverty in these countries. Millions of people are graduating each year and there are not enough jobs to absorb this graduate army. The Internet revolution has meant that traditional jobs like accounting, law, research etc is now easily outsourced at a fraction of costs. This means massive deflation in wages even in the West as wages converge gradually all over the world. This growing unemployed army is growing even larger in size each year as there are simply not enough decent paying jobs.

Chinese Low Cost Engineers Massacres Western Telecom Companies

The relentless rise of Chinese telecom equipment and OEM companies has massacred telecom jobs in the West with major companies like Nokia, Alcatel and others firing in the thousands. Note Huawei and ZTE have become the nemesis of the telecom equipment makers which are showing losses in the last few years. These companies are not managing to compete with the low cost engineer advantage of the Chinese firms . Nokia is also firing thousands in its western factories in Poland and other places as it moves production to Asian factories. Note while Nokia has become unprofitable to other causes like Apple and Android, low cost phones from Asia is the biggest factor in its demise as well.

Labor Cost Arbitrage

One of my theories is that a lot of distortions and opportunities for arbitrage that we are seeing in the world today is because “Labor is not Globalized while Capital and Trade are “. However the Restrictions on the “Globalization” or in other words Free Movement of Labor is being reduced through the following trends:

1. Improvement in Communication and Transportation, that has given rise to Outsourcing.
2. Creation of regional blocs like the NAFTA, ASEAN, EU etc. has allowed broken the labor barriers within the bloc between the members. This has resulted in “winners” in the form of the “poorer members labor” and  “losers” in the form of “richer members labor”.
3. MNCs like IBM, Applied Materials with operations spread across multiple countries exploiting this situation by moving most of their labor requirements to low cost locations.

Part Time Workers growing rapidly as Companies exploit Advantage

While 2 million more workers are employed in the US than in June 2002, there are 4 million more part-time workers today than there were a decade ago. And even with these 4 million part-timers counted, there are 4 million more people unemployed now than there were 10 years ago.This means that there are 2 million fewer full-time workers today than in 2002—an unprecedented change. Over the course of the last decade there has been what can only be described as a seismic shift in the composition of the American workforce, as employers make a calculated move to bring on more workers on a part-time basis instead of hiring them full-time.

600 million jobs needed

Over 600 million jobs will be needed over 15 years, a majority of them in Asia and Sub-Saharan Africa, to maintain the world’s employment rate at current levels, says a new World Bank report.  “Technology is changing the way workers and firms connect, through their access to much larger, even global, employment marketplaces,” the report said. It also noted that part-time and temporary wage employment had become key features of industrial and developing countries.