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Rising Wages in India


Information technology workers in India reported double-digit salary growth in 2003, according to recent research, while pay for similar work within U.S. borders has been relatively stagnant if not declining. Although India's salaries generally remain significantly lower than U.S. averages, the narrowing wage gap and other unforeseen factors are leading at least some American companies to reassess the cost savings to be had by sending work offshore.

India's wage inflation, which approached an estimated 14 percent last year, is a natural byproduct of a classic supply-and-demand scenario. …

What can I say besides I told you so? I do hope Paul Craig Roberts takes note of this, and adjusts his message:

The huge labor surplus in countries such as China and India means that wages are not likely to rise very rapidly in those countries. U.S. firms that substitute Chinese and Indian labor for U.S. employees are building in lower labor costs for years to come.

Real wages are determined primarily by the productivity of labor [Reisman, Capitalism p. 618]. United States wages will fall somewhat, in response to the deflation of the bubble, but the overwhelming trend will be for foreign wages to rise toward U.S. levels, not for U.S. wages to fall toward foreign levels.

Tasks that cannot be performed competitively in the United States will be performed elsewhere, while the infinite desires of people will — must — create new domestic jobs along lines of comparative advantage. The adjustment is necessary and healthy. The economy will only be damaged by political attempts to prevent or slow the process.

Hat tip: Catallarchy

Tiny Island