Even if your social calendar is relatively modest, you've probably heard some very lively informal debate over the past year regarding the off-shoring of U.S. jobs and, most certainly, our rising level of unemployment. This morning's New York Times may have just reported on the next sequel to these hot topics saying that "American workers are overpaid, relative to equally productive employees elsewhere doing the same work [and] If the global economy is to get into balance, that gap must close."
While this idea in the midst of financial hardship for so many millions of Americans is not going to be embraced with open arms, it has been bantered about for some time. The FinanceProfessor.com in discussing the topic today provides a link to a May, 2005 NYT Book Review, of Thomas L. Friedman's, The World Is Flat: A Brief History of the Twenty-First Century that claims "The metaphor of a flat world, used by Friedman to describe the next phase of globalization, is ingenious. It came to him after hearing an Indian software executive explain how the world's economic playing field was being leveled." Leveled indeed and probably more flat than Mr. Friedman could have imagined in 2005.
The "wage gap" has typically referred to the variance in wages paid to men and women who perform the same job. This definition sounds almost quaint when reading today's Times report that "The global wage gap has been narrowing, but recent labor market statistics in the United States suggest the adjustment has not gone far enough. One indicator is unemployment, which has risen unexpectedly rapidly. The 7.3 million jobs lost are more than triple the 2 million during the 1980-82 recession. Some of that huge increase reflects the sharp decline in gross domestic product, but there could be another factor: the recession shows that many workers are paid more than they're worth … [and] The big trade deficit is another sign of excessive pay for Americans."
Exactly how American wages can be brought into balance is unclear but "both moderate inflation to cut real wages and a further drop in the dollar's real trade-weighted value might be acceptable" according to the article along with a very dismal prediction that "if American wages get stuck above global market-clearing levels, as in the 1930s, the result could well be something approaching Depression-era levels of unemployment."
Some companies will undoubtedly use these observations to further reduce costs by reducing wages at a time when the majority of workers will have little choice in the matter. But while we must be vigilant regarding wage inflation and unrealistic collective bargaining demands on the labor side, American corporations must also keep in mind that the “wage gap” is just one of many global macro economic imbalances for which there are no simple remedies.