Question

In two or three sentences, please give a specific example where the following economic concepts have been important in improving our understanding of American economic history.

Capital Chasing Labour

Answer 1

Money is simply chasing cheap labour. In other words, capital, the resource that fuels our industries, has to look for the lowest labor costs so that companies can survive. Needless to say, a company has the first task of creating a quality product or providing a quality service. The second challenge is the provision of such a product or service at the lowest cost possible. This need to keep labor costs low is part of a very old capitalist dynamic whereby a company is forced to keep down its costs as consumers demand good products at low prices.

The exception to this is when there is some kind of monopoly situation whereby the product or service manufacturer / seller does not have to worry too much about pricing, because there is little likelihood that another company will come along and offer a similar product or service for less. That type of situation, however, is not very common. Customers simply get too much competition; this fact alone prevents a company from ignoring its pricing structure.

Over the past two hundred years, the cheapest labor for U.S. products and services has come from the South of the United States. However, in recent decades cheaper labor came from countries in the Far East such as Japan, Taiwan, South Korea, and China. In addition, a great deal of cheap labor has come from India in the last ten years. Actually, many people are not yet aware of how much the U.S. outsources labor to India. A case in point that some might find shocking is the fact that over 500,000 U.S. Federal Income Tax returns for 2005 are to be put together in India's back offices.

U.S. businesses have come to realize that many things can be digitized in the relentless search for cheap labour— for example, your personal tax return. Your CPA may send all your tax information to an outsourcing firm somewhere in India by e-mail. The CPA can then leave the office, go to dinner, enjoy the evening and expect the information that was e-mailed to India in the afternoon to return in the form of a completed tax return the next morning.