Outsourcing Pros And Cons Economy
Should we require that American companies outsourcing to other countries pay workers at U.S. minimum wage?
Many U.S. companies outsource because they can get cheap labor in other countries that don’t have a minimum wage level; if they can get someone to work for $1 an hour in another country, they can save SO much money compared to paying an American $6.55 an hour for the same job. Many people in other countries are so poor that they will work for $1 an hour or much less, even if the money they earn still isn’t enough to get them out of poverty. So this system kind of exploits people.
What would happen if a law went into effect that mandated that all U.S. companies pay their workers, even workers outside the U.S., at minimum wage? What effects would this have on the economy? Good or bad idea? Pros and cons? What do you think?
That would be a bad idea. For three main reasons which i will just summarize but you can look further into if you want.
First: it eliminates the whole concept of firms, to maximize profits by decreasing marginal costs.
Second: It prevents the labor market equilibrium from being met, yes 1$ an hour is bad for americans, I agree, but to a chinese peasent who is use to living on less than 365$ a year, 1 $ an hour, 80 hours a week, 50 weeks a year is a fortune.
Third: It prevents both Americans and foreign workers from realizing their true comparative advantage, which inevitably will lead to lower outputs and higher prices than in true global market equilibrium.
If you are interested in teh goods/bads/uglies of globalization, read this:
http://answers.yahoo.com/question/index;_ylt=Amj1pi0k0CpIEEYYBKSQqCjsy6IX;_ylv=3?qid=20090301125804AAdYoTB&show=7#profile-info-dwkurIyNaa