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Many scholars suggest that an intensified economic exchange between North and South would trigger a race to the bottom, which would mean that eventually, workers all over the world would earn the same low wages that workers in the South currently ea - Essay Example

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However, contrary to the expectation, intensified economic exchange in America, as a result of free trade has negatively impacted on wage rates. Consequently, as free trade extends to non- American economies,…
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Many scholars suggest that an intensified economic exchange between North and South would trigger a race to the bottom, which would mean that eventually, workers all over the world would earn the same low wages that workers in the South currently ea
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Many scholars suggest that an intensified economic exchange between North and South would trigger a race to the bottom, which would mean that eventually, workers all over the world would earn the same low wages that workers in the South currently ea

Download file to see previous pages... In an effort to compete fairly, production firms left in the developed countries try to reduce their production costs by reducing labor costs and deteriorating work environment conditions, hence resulting to a race to the bottom. Economics have tried to explain this phenomenon, proposing solutions to the controversy.
To start with, economic growth differs from nation to nation and thus causing differences in development status. Accordingly, prices differ mostly due to production costs. United States as a nation portrays a clear image of this phenomenon, with the south being less developed as compared to the north. While cheap labor dominates the undeveloped regions, capital accumulation is higher in developed regions. With the aim of maximizing profits, capitalists from the north have shifted their investment to the south to capture the available cheap and trainable labor (Rosnick, 2013). This reduces the demand for northern labor, causing their wages to fall. Mainstream economists; consider investors as rational and thus the shift of investment nets ought to continue until wages in the northern region equal those of the southern region. It’s worth noting that with current rate of technology advancement, production requires few experts and many casual workers, which reduces the demand for high rank workers.
Competition enhances quality and sustainability of supply, but this does not guarantee improved social welfare. Technology increases efficiencies in production and the higher the level of technology, the lesser the variable costs of production. Thus with variations in technological knowhow, competition becomes unfair and the developing nations are always on the losing ends (Jensen, 2011). This was the case in Mexico as a result of increased economic exchange after introduction of North American free trade area (NAFTA). Mexican farmers could not compete with American corn. As a result, productivity in Mexico reduced ...Download file to see next pagesRead More
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