Friday, February 09, 2007

Asian workers suffering from global labor arbitrage?

Eddie Lee has posted In Search of the Virtuous Cycle over at Global Economy Matters, which addresses the idea that, in Korea at least, "weak domestic spending has left the economy vulnerable to a downturn in its booming export sector." He mentions Taiwan, Japan, and Singapore as having domestic consumption issues as well. Lee states that "There is widespread agreement that the East Asian Tigers are feeling the weight of the global labour arbitrage– it is a reason why median real income growth is modest at best." So workers in these countries respond to reduced income growth by reducing their spending, whereas US workers respond by maintaining consumption through taking on increased debt. There is clearly a major cultural difference with respect to attitude towards personal debt at work here.

However, US consumers are benefiting from low interest rates due to the willingness of Asian countries to park their export earnings in US debt. Paradoxically, if Asian workers increased their spending, their countries would need to rely less on exports for GDP growth, which in turn would allow for repatriation of capital currently invested in the US which could be invested locally, which would generate increased productivity which would allow for increased domestic income growth. Whew! That's a long sentence, but it sounds like a virtuous cycle to me.

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