Fact: Earnings are rising for the world’s poorest and wealthiest but remain stagnant for those people in between. In 1980, isolationist barriers in low-wage countries such as India and China prevented businesses in high-wage countries from employing the poorer nations’ cheap labor. Many believed that eliminating these barriers would unleash a flood of outsourcing that would concentrate GDP growth in low-wage countries and reduce wages in developed countries. That hasn’t happened. While the 60% of the world’s people living in poorer countries have seen their earnings grow since 1980, so have the 20% who live in wealthy countries. It’s the people in the world’s middle-income countries—20% of the world’s population—whose earnings have stagnated. Why is this? Media reports notwithstanding, global competition has not been very intense between the poorest and wealthiest countries. Few of the labor-intensive products made in India and China are also made in high-income countries. Consequently, workers in wealthy countries have not felt the force of competition from low-wage producers. Middle-income countries, however, have not escaped direct competition with these poorer nations. This is not likely to change anytime soon. Technological advances will continue to drive growth in the high-income countries, while middle-income and poor countries compete for the mundane work. In that competition, large, poorer nations—by virtue of their vast low-paid labor supply—will retain the upper hand. Businesses should weigh this continued dispersion of growth when setting their global strategies.
