Low wage country

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As a low-wage country (colloquially low-wage country , English low-wage country ) are countries where labor costs are significantly lower than the average of other countries (the so-called "pay gap"). The opposite is the high-wage country .

General

The benchmark is the economic indicator of labor costs. These differ from state to state for comparable employment , so that they can be the cause of labor migration . With the destination principle (or with a minimum wage ), a high-wage country protects on the one hand its acquired productivity and prosperity , on the other hand it gives the low-wage countries the opportunity to follow suit through wage convergence . Because the labor migration can lead to low-wage country workers just are, and in high-wage an excess supply of labor - that is unemployment - is created. This results in a leveling trend in labor costs (rising in low-wage countries, falling in high-wage countries).

There are also low wages in highly developed industrial nations , including the USA and increasingly also in Germany . However, they do not belong to the low-wage countries because, statistically, the low wages only make up a small proportion of the average labor costs.

The low wages often go hand in hand with poor working conditions with low standards of work safety , occupational health and safety , permitted child labor , lack of protection against dismissal or poor qualifications .

Classification as a low-wage country

When a state can be classified as a low-wage country is controversial. The World Bank describes all countries with an average per capita income of less than $ 995 per year as low-wage countries. Other authors assume that all states are considered to be low-wage countries if their wage level is at least 50% below the level in Germany. In 2004, the average monthly salary of more than 4,000 euros for a software developer in Germany was compared to an average monthly income of 850 euros in Latvia , 450 euros in India , or even only 50 to 150 euros in the Southeast Asian region. Both definitions are problematic because significant differences in purchasing power make comparison difficult. This can be remedied through purchasing power adjustment or a purchasing power standard .

economic aspects

In March 1776, the economist Adam Smith assumed that foreign trade is worthwhile when a good can be produced more cheaply in one country than abroad; from this he developed the theory of absolute cost advantages in his work The Prosperity of Nations . Smith only looked at labor costs, so a country with higher labor costs can import certain products from another country where the labor costs for those products are lower. David Ricardo went one step further in 1817 and considered trade to be advantageous even if one of the countries can offer all products cheaper ( comparative cost advantage ).

Today's classification of different labor costs makes use of the so-called Atlas method and is based on the amount of generated gross national income ( english income gross national , GNI) per capita (per capita income). The GNI has taken the place of the gross national product (GNP) previously used in the UN's national accounting system of 1993 . It contains all income earned by residents, regardless of whether this was done in Germany or abroad. As long as the high cost of labor by high labor productivity are justified, they are not a competitive disadvantage is to other states. Contrast, low-wage countries have a competitive advantage compared to high-wage countries, because the former can produce more cheaply because of low labor costs. However, this is not always possible, because in low-wage countries there is neither qualified workforce nor the (industrial) infrastructure .

Globalization also means that parts of the value chain are relocated from high-wage countries to relatively poor, low-wage countries (e.g. body construction in the automotive industry), provided that qualifications and infrastructure are available. This shift is called outsourcing or intercontinental offshoring . Between 1990 and 2007, for example, automobile production increased by 5% in the high-wage countries, but by 251% in the low-wage countries. If production is carried out in a high-wage country, the longer production time is accompanied by high labor costs and, in addition, higher overheads . This already results in major price disadvantages that are hardly accepted by the market.

Low-wage countries internationally

Adjusted for purchasing power, in 2017 Liberia was the poorest low-wage country with a gross national income (GNI) per capita of US $ 710, followed by Central African Republic (730), Burundi (770), Democratic Republic of the Congo (870), Niger (990), Malawi (1,180) , Mozambique (1,200), South Sudan (1,440), Sierra Leone (1,480), Eritrea (1,500), Madagascar (1,510), Comoros (1,570), Togo (1,620), Gambia (1,670), Guinea-Bissau (1,700), Burkina Faso (1,810) and Uganda (1,820). Only then did the first non-African country follow with Haiti (1,830). The poorest low-wage country in Europe is Kosovo (11,050), followed by Albania (12,120), Bosnia and Herzegovina (12: 880), Serbia (14,040), North Macedonia (14,590), Montenegro (19,150), Bulgaria (20,500), Croatia (24,700 ), Romania (25,150) or Turkey (26,150).

If you take into account the labor costs in euros per hour, the following countries were among the low-wage countries in the European Union:

country 2007 2017
EU total 22.80 26.80
Bulgaria 2.10 4.90
Romania 3.90 6.30
Lithuania 4.30 8.00
Latvia 3.70 8.10
Hungary 6.70 9.10
Poland 6.70 9.40

Typical European low-wage countries are Bulgaria, Romania and Lithuania. The further east or south-east a state is, the more likely it is to be one of the low-wage countries. The time comparison shows the clearly increased labor costs; an empirical proof of the wage convergence that has occurred.

Opportunities and risks in globalized competition

The wage gap between industrialized nations and low-wage countries offers companies in industrialized nations incentives to outsource , offshoring or nearshoring , although there are also high risks that can counteract the supposed cost reductions .

Chances of relocating production to low-wage countries

  • Is u. a. the chance for economic growth and the creation of numerous jobs - also in economically disadvantaged regions.
  • While in industrialized countries low-quality work and sometimes entire production processes are outsourced to outsourcing and subcontractors in order to save costs , the wage structure of most low-wage countries allows these tasks to be kept in-house
  • Favorable prices for consumers.

Risks of relocating production to low-wage countries

  • Significant additional effort for communication , coordination , technical infrastructure.
  • Considerable geopolitical uncertainties (regional neighborhood conflicts, race unrest, terrorist threats, religiously motivated conflicts).
  • Massive infrastructure problems (health care, hygienic conditions, electricity and water supply, transport links).
  • Strong employee turnover .
  • Management problems (in addition, refusal of management or family members to move).
  • Cultural differences and linguistic difficulties that often cause misunderstandings.
  • The disadvantage is the frequent lack of occupational safety and labor rights , which can exacerbate the social problem in the medium term, as well as problems with one-sided import - export relationships and environmental protection (lack of appropriate regulations).
  • The maquila industry in Latin America is a special case . It has made northern Mexico , for example , an extremely dynamic economic zone, but has resulted in poor working conditions, social tensions and environmental pollution.

Efforts to improve for employees

Many transnational companies (TNU) are now trying to enforce compliance with social standards by their suppliers . A major reason is the public criticism of the catastrophic working conditions, for example in the clothing industry . This damages the reputation of responsible buyers from high-wage regions who do not want to enrich themselves at the expense of poorly paid workers.

However, not all TNU control the entire supply chain . The Clean Clothes Campaign has started an action against violations of social standards in Tchibo supplier companies in Bangladesh : working hours there are up to 90 hours a week. Women workers are made redundant when they want to unionize. Many of these campaigns remain half-hearted, however, as the poor working conditions in these countries are offset by competitive advantages for customers.

Thus, buying behavior in the high-wage regions makes a significant contribution to the structuring of working conditions in low-wage countries.

When negotiating the United States Mexico Canada Agreement (USMCA Agreement), the negotiations with Mexico also specifically aimed to limit Mexico's low-wage advantages through stricter rules on labor law, including monitoring by independent experts.

criticism

Although part of the wage difference is offset by higher purchasing power in these countries, this mainly relates to services and mainly wage-intensive products, while goods such as medicines differ only slightly in price if they are of comparable quality . In these countries, cheaper apartments are usually matched by poor housing conditions. In order to acquire capital goods , employees in a low-wage country have to spend a multiple of working hours .

Side effects of the low wages in these countries are often insecure working conditions , poor hygiene and occupational safety , a lack of social security and child labor , as the parents' wages are often insufficient to support the families. Organizing a trade union in many of these countries poses high risks for workers as it is systematically hindered by employers.

See also

Web links

Wiktionary: low wage country  - explanations of meanings, word origins, synonyms, translations

Individual evidence

  1. ↑ Heiner Flassbeck, 50 Simple Things You Should Know About Our Economy , 2006, p. 81
  2. ↑ Eckhard Jesse / Armin Mitter, The Design of German Unity: History, Politics, Society , 1992, p. 296
  3. ↑ Welt.de of March 18, 2010, Germany has become a low-wage country
  4. ↑ CESifo Group Munich - Low-Wage Countries. Retrieved September 12, 2018 .
  5. ↑ Ulrich Jürgens / Martin Krzywdzinski, The New East-West Division of Labor , 2010, p. 28
  6. ↑ Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations , 1776/1978, pp. 64 f.
  7. ↑ David Ricardo, The Principles of Political Economy and Taxation , 1817, pp. 184 ff.
  8. ^ Paul JJ Welfens, Fundamentals of Economic Policy , 2008, p. 533
  9. ↑ Ulrich Jürgens / Martin Krzywdzinski, The New East-West Division of Labor , 2010, p. 29
  10. ↑ Eurostat, press release 60/2018 of 9 April 2018, labor costs in the EU , p. 3
  11. ^ US, Mexico and Canada sign revised trade deal to replace Nafta. In: The Guardian. December 10, 2019, accessed December 14, 2019 .