I have written a lot about this issue of Factor Price Equalization but the idea does not just mean outsourcing. There are three ways it works:
- Outsourcing – yes when HP closes a production facility here and opens a new one in China the message is clear – allow us to lower your wages or your job will be next.
- Organic Growth – once Apple has set up a plant to make iPads in China, every new increase in sales (or new product addition) will mean an expansion of that same plant. Jobs are not moved from the US but the message is the same – if you worked for $5/day those new jobs would have been created here.
- Internet based freelance job sites for writers or programmers automatically allow workers from anywhere to offer their services in the same location so every employer can see that the programmer in Mumbai charges a fraction of his American counterpart. Every worker listing himself sees this disparity and must respond – usually by lowering his own wages.
As demand rises, job growth does occur but it will be invisible in the high wage state. The message from global corporations is impossible to miss. The web is now sending the same message to start-ups. Money from non-tradable sectors like like bombs and banks keep Washington from seeing what's going on. The city exists in a world of un-exportable labor – lobbyists, Congressmen and media coverage people cannot be replaced by Chinese peasants chained to a desk.
The only place in the country that is completely unaffected by this crushing force is our capitol.