The Impact Of Offshoring On Both High Skilled And Low Skilled Workers During Developing Countries Through Examining The Heckscher Ohlin Model

It’s important to have labor restrictions and eliminate unfavorable wages and poor working conditions in the developed importing countries. The low labor cost in developing countries is the result of poorly

With the addition of China into the globalization world, the world supply of labor far exceeds the demand. With several billion new workers in the global supply of labor, companies may shop for labor and relocate to wherever it is the cheapest. Laborers in foreign countries are willing do the same work that a high paid employee would do for less. If American corporations are to compete in the new global economy, they will have to

In the third world countries such as Vietnam, China, South Korea and Taiwan, we are provided with an example of cheap labour. These corporations could now achieve the benefit of the United States consumer market8, while keeping their costs extremely low in offshore production. The working conditions in the United States were poor for centuries, often little to nothing was done unless a tragedy occurred to influence worker rights by the public. This was the issue during the Industrial Revolution and in the late 20th century. In the United states, improvements have been made and these conditions have disappeared, with the privilege in some agricultural areas. Companies from the United States have moved a considerable amount of their factories

On the wage front, Boudreaux notes the “high correlation between openness to foreign trade and people’s material prosperity.” The numbers provided within back him up. Between 1980 and 1998 citizens of countries most closed to trade had average annual per-capita incomes that were 13 percent of the wages earned by citizens in countries lacking heavy barriers to exchange. This shouldn’t surprise us when we consider labor is by definition finite, but potential jobs

In his article “Globally Ready” President of the National Center on Education and the Economy, Marc Tucker, argues the new world of work demands young people with high-level skills who are globally aware. Tucker explores how in the 1970’s falling prices for transporting manufactured goods made it possible for companies to relocate their facilities where they could get workers with the necessary skills at the lowest possible cost. This outsourcing left millions American’s who held low-skilled jobs unable to work due to their inability to compete and perform in the job market that now required a higher level of expertise. Tucker additionally explains that although wages have risen greatly, within striking comparison of U.S. wages, in outsourced countries

However, it was apparent to economists that nations with similar resource endowments exchanged similar products with each other. Economists felt that trade explained solely by comparative advantage was an incomplete analysis of international trade. Furthermore, since the classical trade theory was unable to explain intraindustry trade, economists decided to expand on the classical trade theory by creating a new theory of trade (Carbaugh, 2011). The new theory states that economies of scale provide incentive for a country to specialize in a particular product (Carbaugh, 2011). Furthermore, based on economies of scale, nations with similar factor endowments will trade with each other as sometimes it is beneficial (Carbaugh, 2011). Arguments stemming from this new trade theory puts the economic case for free trade in doubt.

Although these new technology, more like companies, enter a new land looking for cheaper work force, it stills gives the country a huge boost in the demand for low level skilled workers. In the article “In what way has globalization affected unemployment?” Marsida T. Najdeni said that “What used to be done by low skilled workers in the U.S., it is probably getting done in sweatshops across Asia. Nonetheless, these sweat shops are all these Asian workers from the other side of the world have to survive. The famous Cambodian sweatshops to us might be unimaginable, but to the people living there is the only way of making their daily bread.” meaning that the gain of these countries mean losses to some already developed countries, like the US for

The country can maximize their wealth by putting the resources in the most competitive industries. Government created comparative advantage rather than free trade because now easier moves the production processes and the machines into countries that can produce more goods (Yeager & Tuereck, 1984). However, many countries now move to new trade theory suggests the ability firms to limit the number of competitors associated with economic scale (reduction of costs with a large scale of output) (Krugman, 1992). The comparative advantage occurs when two-way trade in identical products, it will useful where economic scale is important, but it will create problem with this model. As a result, government must intervene in international trade for protection to domestic firms (Krugman, 1990)

Comparative advantage is affected by the interplay between the resources available to a country (the relative abundance of factors of production) and the production technology (which affects the intensity through which the factors of production are used in the production process). What we understand from the Heckscher-Ohlin model is that international trade is by and large directed by the differences in resources or in other words, the existence of differences in economies’ resources is the cornerstone of trade.

Companies move to developing and third world countries for cheaper production cost. In those countries may be they do not need to provide the workers any benefits and the salary requirement is lower compared to what they had to pay in the home country. In this way the industrialized countries exploit the labor force of less economically developed country. They pay them less but earn more profit (by reducing labor expense). Child labor is also an

If businesses don’t export jobs overseas, they need to find new ways to remain competitive in the global markets. This can come in the form of pay cuts for employees, which also harms the economy since there is less disposable income (businessweek.com). Again Mourdoukoutas (2011) offers his support by stating globalization can lead communities to escape the unemployment trap by devaluating currency and raising trade barriers. China currently employs the currency devaluating tactic to maintain their edge in American markets. This makes American products more expensive to obtain in China, as opposed to their inferior, cheaper products. This causes American based businesses to seek new creative ways to lower production costs to remain competitive in Chinese markets.

The following pages focus on analyzing the effects of globalization on labor markets, which is an important international business topic. The Introduction presents the points of view used in addressing this issue. The Labor Markets section presents some of the most important characteristics of labor markets that must be presented in order to understand how they are affected by globalization. The Key Priorities of Labor Markets section presents some of the most important priorities of governments determined by globalization. The Globalization of Labor Markets and The Effects of Globalization of Labor Markets section provides an analysis of this issue, its effects and its importance. The Conclusions section provides some of the most important issues addressed by this paper.

Globalization can be seen as a major threat for manufacturing jobs in the developed world, however, can also be a benefit for developing world citizens who receive thousands of jobs a year although they don’t receive a high salary. Maurice Allais, a French economist states that this unemployment, of course, has only been able to develop because of the existence of low salaries and insufficient flexibility in the labor market (April 10th, 1999). This indicates that globalization has jeopardized Western countries jobs because companies are moving their establishments to developing countries where they don’t need to pay employees as much and where land is cheaper so overall businesses benefit from this. Also, employees in the developed world are at risk of becoming redundant as they are susceptible to face pay cuts in jobs. Employees are less skilled in the developing world as they don’t receive the benefit of an education like developed countries do. So a company may want to build factories in these countries because environmental laws aren’t as strict. Establishments in these areas provides promising jobs for the local people and allows them to learn new skills, however they are set on minimum wage which in developed world countries, this would not be enough to live on, wherein third world countries this is still a low amount so this is not enough to bring them out of poverty meaning that the only one who benefits from this is the company. Although there have been several arguments against exploitation and oppression, the majority of developing countries do not have existing laws which take minimum wage

A country is said to be more productive than another country, if it can produce more output (goods) for a given quantity of input, such as labour or energy inputs. An example is that there are only two countries, Australia and Japan. They both produce computers and wine, and only one factor of production, labour. Japan produces 6 computers for every 1 bottle of wine, where as Australia produces only 4 computers for every 3 bottles of wine. This suggests that Australia should export some of its wine to Japan, and Japan should export some of its computers to Australia. Australia has an absolute advantage over Japan, when producing wine, and Japan has an absolute advantage over Australia, when producing computers (Gandolfo, 1998).

Manufacturing adjusts to meet a constant return on the product (Hunt & Morgan, 1995). Effectively, these theories rely on national monopolistic models to explain comparative advantage (Ossa, n.d.). While the standard of comparative advantage explains why trade can exist between countries, the assumptions do not account for conditions of increasing returns and imperfect competition.