Wage differentials

Editorial note: If you have not yet read our mission statement above, please do so in order that you can put our blogs in context. 

8 December 2012

We all know that salaries in the First world differ considerably from those in the Third world.  Yet it is an eye-opener, all the same, to discover how dramatic the gap is.

The International Labour Organization (ILO), a UN agency based in Geneva, Switzerland, published a report yesterday which, inter alia, highlights international wage differentials.

Using data for 2010, the report shows, for example, that the hourly earnings of a worker in the manufacturing sector, converted into euros, were:

–      0.77 in the Philippines;

–      4.2 in Brazil;

–      17.9 in the United States;

–      26.8 in Denmark.

[According to parities posted by Reuters this evening,

1 euro  =  1.2923 US dollars  = 0.8060 pounds sterling]


Obviously, there is a massive gap between salaries in the developed and undeveloped worlds.  This is the basic motor of globalisation, namely the relocation of industries from high-wage to low-wage countries in the interests of increased profitability.

Equally obviously, we need to take into account the relative cost of living when assessing the spending power of earnings in different countries. Clearly, 77 cents (0.77 of a euro) will buy more in Manila than it will in Copenhagen. Workers in lower-wage countries are not necessarily living on the breadline (although this may be the case).

The question we find it difficult to answer is this: with relatively sky-high labour costs, how can Danish exports  – and those of other countries with comparable wage levels – manage to compete in a global market?

There are two explanations we can think of:

1. The cost of labour forms a relatively low percentage of the overall cost of first-world exports;

2. Highly developed economies (like those of Germany and Denmark, for instance) export highly sophisticated knowledge-intensive niche products with which upstart companies in the developing world have not the resources to compete.  Sometimes first world exporters have also benefited from a centuries-old manufacturing tradition. One example is the export of world-leader precision medical equipment from the Black Forest region of Baden-Württemberg in Germany. This expertise originated out of the area’s historic tradition of clock manufacture.


 You might perhaps care to view some of our earlier posts.  For instance:

1. Why? or How? That is the question (3 Jan 2012)

2. Partitocracy v. Democracy (20 July 2012)

3. The shoddiest possible goods at the highest possible prices (2 Feb 2012)

4. Capitalism in practice  (4 July 2012) 

5.Ladder  (21 June 2012)

 6. A tale of two cities (1)  (6 June 2012)

 7. A tale of two cities (2)  (7 June 2012)

 8. Where’s the beef? Ontology and tinned meat (31 Jan 2012)

Every so often we shall change this sample of previously published posts.








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