Wages Move Toward Equilibrium
By Arnold Kling
the surge in companies going to India, China, and Eastern Europe in search of very cheap brainpower may soon be coming to an end — far sooner than anyone has anticipated.
Why? Simply put, the wage gap between the U.S. and Asia is shrinking. Pay scales are rising fast in India and China for college-educated, English-speaking professionals. As U.S. and European companies send more of their call-center, design, accounting, medical-service, and legal-service business overseas, demand for folks to work at these centers has soared.
And since these Indians and Chinese aren’t anyone’s fools, they’ve been demanding — and getting — increasingly higher compensation…
Global labor arbitrage is hard at work narrowing the international wage gap among educated workers. That may not be terrific for companies hoping to save costs by sending service operations overseas. But it’s a good thing for Indian, Chinese — and American — workers.
The anti-outsourcing hysteria assumed an infinite supply of highly-educated foreign workers willing to work for coolie wages. The reality is that the supply is far from perfectly elastic, and markets work.