Does relaxing labour standards or reducing wages automatically make an economy more ‘competitive’? Many pundits and businesspeople give this impression.
But while such policies may make particular firms more profitable, they are likely to make workers or others worse off. A minimum wage, by contrast, is likely to boost worker incomes at the expense of lower corporate profits (and possibly, but not necessarily, jobs.) It may or may not affect investment: reduced corporate profitability could reduce investment in some areas, but higher worker incomes will likely boost consumption and boost investment in other areas.
Each of these changes is not necessarily a net overall cost (or benefit) to an economy in growth or ‘competitiveness’ terms: they create internal transfers between different sectors in an economy. As Martin Wolf, Paul Krugman and many others have observed, countries can have higher regulatory burdens, minimum wages, labour standards, and more, with no loss of anything one might call international competitiveness. (For instance, the striking example of highly regulated France versus the supposedly more ‘competitive’ United Kingdom challenges a lot of the conventional wisdom.)
These transfers inside an economy can have side-effects such as higher or lower economic inequality. And there is evidence that a race to the bottom may be underway between countries, which isn’t necessarily in anyone’s interests. So when someone talks about wages and ‘competitiveness’, watch your wallet.
Read the latest blog posts for our articles on labour and the ‘competitiveness’ of nations.
Latest blog posts
Competitiveness and wages in the Eurozone(Labour & Wages) No CommentsMartin Sandbu has a useful piece in the Financial Times entitled Free Lunch: getting real about competitiveness. It makes [...] Read More →
Wages and national competitiveness: getting real(Labour & Wages) No CommentsMartin Sandbu has a useful piece in the Financial Times entitled Free Lunch: getting real about competitiveness. It makes [...] Read More →
Why the Competitiveness Agenda is likely to mean slower growth(Blog, Labour & Wages, The Harms) No CommentsUpdate: now re-published at Naked Capitalism. The purveyors of the modern-day Competitiveness Agenda exhibit pronounced [...] Read More →
Labour standards and the race to the bottom(Blog, Labour & Wages) No CommentsFrom The Economist, in November 2013: “Globalisation sceptics often warn of the pernicious effects on labour standards [...] Read More →