Between 1980 and 2000, India, China, and the former Soviet block joined the rest of the global economy. They had enough potential workers to basically double the global labor supply, but had relatively little useful capital (because of poverty and technological obsolescence). We now have twice as many workers competing to sell their labor to the same supply of capital. Which means that wages are going to fall.
Globalization is good for employers and Indian/Chinese/Russian workers. It sucks for American and Western European workers—even skilled, highly educated workers, because Indian/Chinese/Russian workers are becoming skilled and highly educated very quickly.
Even considering the high savings rate in the new entrants—the World Bank estimates that China has a savings rate of 40% of GDP—it will take 30 or so years for the world to re-attain the capital/labor ratio among the countries that had previously made up the global economy.
A very informative article about the impact of outsourcing.
The tl;dr version:
Between 1980 and 2000, India, China, and the former Soviet block joined the rest of the global economy. They had enough potential workers to basically double the global labor supply, but had relatively little useful capital (because of poverty and technological obsolescence). We now have twice as many workers competing to sell their labor to the same supply of capital. Which means that wages are going to fall.
Globalization is good for employers and Indian/Chinese/Russian workers. It sucks for American and Western European workers—even skilled, highly educated workers, because Indian/Chinese/Russian workers are becoming skilled and highly educated very quickly.
Any theories about when the amount of capital will start catching up?
From the article: