The Economic Disparity Between Developed and Developing Countries: Why Ordinary Workers Earn More
The wage disparity between ordinary workers in developed and developing countries is a complex issue that has puzzled economists, sociologists, and policymakers for decades. Understanding the underlying factors that contribute to this disparity is crucial for addressing economic inequality on a global scale.
Supply and Demand in the Labor Market
The wage rate for workers is fundamentally determined by the supply of and demand for labor. However, these factors can vary significantly between countries, even for the same job. The labor market is far from globally integrated due to strict immigration policies, and as a result, there are often more people willing to take up a particular job than there are positions available in some regions. This abundance of workers in a given market can lead to lower wage rates. Additionally, the cost of living in developed countries is generally higher, which contributes to higher wage demands and, consequently, higher wages for workers.
The Role of Productivity and Cost of Living
People often argue that the wages reflect the productivity of workers. However, this argument is oversimplified and does not capture the entire range of factors influencing wage disparity. Although productivity can play a role, the cost of the labor involved in performing a task is often subject to more significant changes. For example, the cost of an hour of labor increases with productivity, but this rise is not always proportional. Inter-sector competition can cause the wage rate to rise beyond the productivity gains, as workers in higher productivity sectors earn more compared to those in lower productivity sectors.
The Impact of Global Trade and Exploitation
Workers in developing countries are often exploited by companies seeking cheap labor to serve the affluent markets of developed countries. While developing countries benefit from providing these services, the high wages in these industries can lead to increased prices for products, making it difficult for poorer countries to sell their goods in the global market. This, in turn, contributes to higher unemployment rates and a cycle of economic stagnation. The wage disparity is not primarily due to the productivity of workers but rather due to the economic and political structures in place. Multinational companies often seek to pay workers as little as possible, leading to an overall market price based on the lowest acceptable wage. This can result in a situation where a worker willing to work for a dollar an hour sets the market value.
Comparison of Productivity vs. Wages
To illustrate the complexity of wage disparity, consider a comparison between the top breweries in Germany and Kenya. Despite the Kenyan brewery producing about 45% more beer per worker, German workers earn, on average, 2.5 times more than their Kenyan counterparts. This suggests that wage levels are more closely tied to the general price levels of both labor and goods rather than mere productivity differences. Similar examples can be found in other industries and countries, highlighting the dominance of broader economic frameworks over individual productivity levels in determining wages.
A Case Study: Taiwan vs. the UK
Even in regions with high productivity, wage disparity persists. For instance, Taiwan has a more complex economy and higher productivity per worker compared to many developed countries like the UK. However, workers in Taiwan earn less on average due to generally lower price levels. This situation can be attributed to excessive money expansion that increases inflation, particularly in non-GDP sectors like stock trading or real estate speculation. While productivity per worker is a significant factor, it does not fully explain the wage disparity between countries.
The disparity between wages in developed and developing countries is rooted in a combination of factors, including the cost of living, international trade dynamics, and broader economic structures. Addressing this issue requires a holistic approach that considers the intricate interplay between productivity, cost of living, and global economic policies.