Saturday, December 4, 2010
Laundry lessons - a first follow up
And it did that even though I was careful to point out some of the many benefits of a wide income distribution. There are benefits of non-strict labor laws which make certain businesses possible in America that are very difficult in Europe or Australia.
We have a friend who has a massively cyclic business. (The business involves capital equipment for the construction industry.) They pay their staff very well. (Many receive $100 per hour though most receive far less.) However their staff numbers shrink by 80 plus percent whenever business turns down (regularly enough) and rise by 500 percent when business turns up. The volatility in the business is shared with the staff rather than being absorbed entirely by the owner.
In extrema this business could not exist in (say) France because no business owner could (or would) absorb this volatility themselves. The owner openly says he does not know how people do business in France. Sharing the pain works.
This applies across the whole labor market - the highly flexible working conditions of America are a strength of American business even though at times they result in amazingly large income variability and some very low wages.
Still - and carefully thinking about it - I am not sure what the real cause of low-end wages is.
Many readers thought (logically enough) that immigration levels drove bottom-end wages - after all the women washing my clothes were Chinese and the nannies were largely Hispanic. Some on Business Insider thought me an idiot for not just accepting that. (Australia is - they observed - becoming more closed to immigration.)
I am not so sure.
The US population is 307 million and it grows about 1 million per annum - most of which is driven by immigration - some of it illegal.
Australia has a population of 21.9 million - and the immigration rate has been over 200 thousand people per annum of late. (Its about to drop for political reasons.) The population growth rate in Australia is three times the USA - almost entirely driven by immigration including a lot of immigration of people who would expect to earn below average wages.
In Australia there are more immigrants to do my laundry per head of population than in the USA.
And yet bottom end wages have never been quite as pressured as in the USA - and frankly - I do not understand why.
This is interesting in the case of Australia but truly important for Europe. Europe opened itself to massive internal immigration from poor countries and did not have a collapse in the bottom end wage structure.
The GDP per capita in Bulgaria is under $7000 USD per annum. Bulgaria is poorer than Mexico on that measure. And the border is open. Romania is similar (with a larger population). And sure the low wage workers who clean my hotel room in London are likely to be Bulgarian or Romanian but - whatever - they haven’t managed to drive down the price of laundry.
And that I do not quite understand. It is making writing the European follow up post difficult.
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