Labor Productivity and Wage Rate in Different Countries - Essay Example

International Economy – Econ-335 Labor Productivity and Wage Rate in Different Countries Introduction Labor productivity in different countries is examined through the Ricardian model, which applies the concept of opportunity cost and comparative advantage. In this case, the opportunity cost refers to cost incurred through production of commodities in a given county at the expense of producing other commodities. Labor is a significant factor of production, which varies across numerous countries due to differences in their level of technology. Nevertheless, labor productivity in any country is constant; thus, low labor productivity results from high unit labor requirements. This paper explores the labor productivity and wage rate in different countries. Relative wage in a certain country is evaluated through comparison with wage in another country. Furthermore, the differences in countries’ labor productivity levels are crucial determinant of their relative wage differences. In this case, there is a ratio derived from the relative wages based on labor productivity levels in different countries. On the other hand, decreased productivity in a given country leads to a subsequent decrease in wages. For instance, the wage rates in various countries relative to America are the same as their productivity relative America. Moreover, according to Nir (7), there is a positive relationship between the real wage and labor productivity, which is explained through the economic theory. Therefore, holding other factors constant, workers’ output leads to increased compensation, which is increased wage rate. Workers in different countries around the world have been experiencing difficulties for the past decade. In fact, a global wage report from the International Labor Organizations indicated that growth of productivity exceeded the growth of real wage in numerous economies around the world for the period 1999 to 2007 (Economist.com, 1). For instance, the inflation reduced the purchasing power of worker with dormant wages in countries such as U.S and Japan. In this case, this left workers with significant problems despite the average growth of two percent in labor productivity during that period. In a country like Germany, the recession experienced during year 2008 caused a decrease in the level of real wages, though there was an increase in the level of productivity (Economist.com, 1). There has been a more rapid increase in the level of labor productivity in various European countries compared to the rates of wages. For instance, in Greece and Ireland, their economies have experienced increases in the level of productivity. On the other hand, according to economist.com (1) during the period 2008 to 2011, there was a constant growth in both Spain and Ireland, though they experienced a substantial growth in labor productivity. In the U.S.A, there has been a continued growth in the labor productivity, thereby leading to substantial benefits for workers. Germany had the same experience, which is attributed to increased growth of productivity, which is also beneficial to workers. In fact, this involves increased rates of wages leading to increased exportation of commodities (Economist.com, 1). In 2010, there was increase in the global level of productivity by 3.3% from the previously recorded GDP of 1.2% (Economist.com, 1). Nevertheless, this increase was experienced during recovery from the recession attributed to outputs, though problems such as unemployment prevailed. On the other hand, there was a three percent growth in the level of labor productivity in 2010; in fact, there were expectations that this would be followed by a decrease of 1.6% in the following year (Economist.com, 1). Moreover, according to Economist.com (1), in a country like China, there was 8.7% GDP increase among every worker during the year 2010. Furthermore, the productivity increase has been experienced since mid 1990s, thereby becoming one of the highest among numerous in the world. Bellman (1), explains that among the South Asian countries, economic growth has been experienced leading to formation of politicians’ groups, who are using a notion of increasing wage rate in order to acquire votes from groups of workers. Nevertheless, efforts of increasing minimum wage rate are being made in countries such as Malaysia, Indonesia and Thailand. In fact, issues concerning minimum wages led to the first strike in Singapore during a period of twenty-six years (Bellman, 1). Therefore, governments in these Asian countries are making necessary effort to increase wage rate in order to facilitate building of a substantial middle class of consumers. Wages in China are increasingly reaching the level of wages in a country such as Mexico. However, these rates are posing a threat to the status of the country, thereby requiring efforts to decrease reliance on exports by facilitating a shift of their growth model on domestic consumption. On the other hand, other countries in Southeast Asia are focusing on increasing the number of skilled workers and their salaries in order to develop a domestic demand, which is sustainable and consistent growth (Bellman, 1). Moreover, there are various labor groups, which are focusing on obtaining benefits in South Asian countries, though they are bound to seek ways for dealing with high cost of labor and inflation. Nevertheless, economists in these countries are claiming that increase in wage rate cannot ruin the competitiveness and growth in the manufacturing industry. There was a reduction in the level of hiring in U.S.A, which caused problems to businesses due to decreased number of employees. However, a 1.6% increase in the level of labor productivity in America in a period of three months (April to June) of 2012, led to a decision by the employers to hire for more workers due to increased demand (The Associated Press, 1). In fact, this led to an announcement by the Labor Department, which indicated that the rise in labor productivity in America would be followed by a 0.5% decrease during the first three months of the year (The Associated Press, 1). Given that productivity refers to the amount of output per working hour, increases in the level of labor productivity leads to increased profits for the companies. Nevertheless, it also encourages slowing down of job creation since companies fail to recognize the need for hiring more workers. In America, the level of labor productivity is increasing at a relatively slow rate; in fact, is has undergone a 1.1% increase compared to the previous year (Murat, 1). During the 1947, there was an average increase of 2.2% and an increase of 1.7% in the cost of labor, which was a decreased compared to 5.6% recoded during the first quarter of the same year (Murat, 1). In this case, during this period, there was an increase in the labor cost by 0.8%, which was an indication that there was no increased wages rate and the level of inflation was low. A rise in levels of labor productivity resulted to a decrease in hiring during the second quarter of 1974. In addition, there were seventy five thousand employees, who secured employment during the period of three months (April to June), and this was a decreased from the average number of secured job vacancies during the first quarter of the same year. Conclusion In conclusion, the paper has explored labor productivity and wage rates among different countries across the world. On the other hand, the paper has also presented an investigation of the labor productivity and employment in different countries in order to establish its effects on wage rate. It is also evident that decrease in the level of labor productivity in the manufacturing industry has led to substantial decline in the level of income generation. In fact, the paper has established that increased level of labor productivity contributes to unemployment. In addition, the low cost of labor among various countries has been identified to be a crucial indicator of low wage rate. Works Cited Bellman Eric. “Southeast Asia at a Crossroads on Wages”. The Wall Street Journal. Dec 5, 2012. Available online at: http://online.wsj.com/article/SB10001424127887323316804578160830213287770.html[Accessed on 21 March 2013] Economist.com. Misery farm: Wages and productivity have got stuck in the West. Dec 10th 2012. Available online at: http://www.economist.com/blogs/graphicdetail/2012/12/daily-chart-5[Accessed on 21 March 2013] Economist.com. Labor productivity. Jan 20th 2011. Available online at: http://www.economist.com/node/17966988[Accessed on 21 March 2013] Murat Seker. “Is labor productivity lagging despite job growth in Latin America & the Caribbean?” The World Bank Group. Feb 28 2013. Available online at: http://blogs.worldbank.org/psd/node/13184[Accessed on 21 March 2013] Nir Klein. “Real Wage, Labor Productivity and Employment Trends in South Africa: A Closer Look”. IMF Working Paper. Available online at: http://www.imf.org/external/pubs/ft/wp/2012/wp1292.pdf[Accessed on 21 March 2013] The Associated Press. “Labor Productivity Rises 1.6%.” The New York Times. Aug 9 2012. Available online at: http://www.nytimes.com/2012/08/09/business/economy/productivity-of-us-workers-rises.html?_r=0[Accessed on 21 March 2013] Read More