Thomas Sowell

Those who vent their moral indignation over low pay for Third World workers employed by multinational companies ignore the plain fact that these workers' employers are usually supplying them with better opportunities than they had before, while those who are morally indignant on their behalf are providing them with nothing.

Some of the more rational among the indignant crusaders for "social justice" may concede that the employers are usually offering better pay than Third World workers would have had otherwise. But they see no reason why wealthy corporations should not pay wages more like the wages paid in affluent countries.

There are at least two reason why not -- one economic and one moral.

The economic reason is that output per man-hour in Third World countries is usually some fraction of what it is in Western industrial nations such as the United States. Pay rates raised without regard to productivity are a virtual guarantee of unemployment, whether it is done in the name of ending "exploitation" in the Third World or providing "a living wage" in the United States.

Most modern industrial nations have minimum wage laws but those with higher minimum wage rates or additional workers benefits tend to have higher unemployment rates.

Germany, for example, has perhaps the most employer-provided benefits mandated by government. These benefits include such huge severance pay that firing anyone is likely to be uneconomical. The costs of these benefits have been estimated as roughly double those of employer-provided benefits in the United States.

If you think that is great for the workers, remember that there is no free lunch, for workers or anybody else. The high cost of labor and the difficulties of firing anyone mean that employers are reluctant to hire, even when times are booming.

It is often cheaper to expand output by using more labor-saving machines, or to work the existing workforce overtime, rather than hire more employees. While Americans become alarmed when unemployment reaches 6 percent, double-digit unemployment has been common in Germany.

At one time, neither Switzerland nor Hong Kong had minimum wage laws. Last year, The Economist magazine reported: "Switzerland's unemployment rate neared a five-year high of 3.9 percent in February." For most countries that have minimum wage laws, 3.9 percent would be a five-year low, if not wholly unattainable.

Thomas Sowell

Thomas Sowell is a senior fellow at the Hoover Institute and author of The Housing Boom and Bust.

Creators Syndicate