Issue link: https://read.dmtmag.com/i/141651
The Sin of Wages R LEGAL LINE ecently, we were involved in a couple of projects in which the subject of labor costs in both "contemporary" and "developing" countries was discussed. The sum and substance of the discussions was contrasting the actual cost of a man-hour of labor with what the employer actually received for its money. This discussion requires a careful look at other costs associated with manufacturing and transportation and how some countries and their governments are involved in the process of making, moving and selling a company's products. In many developing economies, even those that are becoming global powerhouses, the heavy hand of government is clearly seen. Direct and indirect subsidies for capital, energy, transportation, labor, medical care, worker housing and all tiers of education are glaringly evident. These are the hidden costs of actual production that must be added to "wages" if a true "human" cost of the process is to be calculated. Let's start by looking at some highly evolved economies in Europe: excellent medical care, pensions, affordable housing, efficient in-country transportation, good infrastructure, excellent education, good pool of skilled workers, and usually a pro-business banking and governmental climate. This is balanced by almost confiscatory taxation, high energy costs and usually some difficulty in matching labor needs to the payroll due to anti-layoff laws and strong trade unions and worldlevel competition for raw and finished materials. IDA UNIVERSAL July-August 2013 In the middle is most of North America. With NAFTA in place making "country" distinctions less important, this area can be competitive in manufacturing and distribution. Labor costs are high, as are payroll additions for social programs, but productivity can be excellent, and the taxes remain "low" in comparison to many modern industrial economies. Moving to the other extreme, there are the exploding "planned" economies that mask true labor costs with a combination of complete disregard for workers – beyond providing some basic necessities – and massive subsidies to "favored" industries and persons. Some of the perks for favored industries and their well-connected owners are: free clinics for workers who are forced to accept minimal medical care, since nothing else is practically available; energy provided by state-owned or influenced suppliers at below world market prices; raw materials from similar sources; "loans" for building factories and worker housing; low rail, truck and ocean transportation using the same type of suppliers; control over education and who is permitted to be educated and for how long; and lastly, the underlying premise that workers are completely expendable, and thus no real concern is shown for safety or working conditions. This system and those like it are hard to beat in a world marketplace. Although oil, gas, iron, steel, polymers and chemicals are "world priced" commodities, somehow they end up going to favored companies at far below Robert W. McIntyre IDA Association Legal Counsel the actual cost – to be hammered, blended and shipped by workers that make a fraction of the wages in developed countries. How then is a "real" labor rate determined to see how to stay competitive? The cost of all of the "state provided" services, facilities and subsidies need to be estimated and added back in. This is hard to do. In the more evolved of the new economies, in the manufacturing sectors, it has been suggested that these costs are as high as $5 to $8 per hour. This is both the immediate dilemma and the seeds of eventual undoing. On one hand, in most established economies, "workers" at all levels are paid "x ," and the workers then pay for housing and some medical care, buy goods and services for themselves and take vacations. The famous Henry Ford model...Pay more so the workers can actually buy the cars they make. On the opposite hand, if the wages are suppressed, then the cost of providing the labor is paid by someone – in most cases, the government – one way or another. However, the money has to come from somewhere: by relentlessly exporting, by paying current Continued on page 60 11