Does increasing the rate of sustainable development in third world countries impact first world wages?

Question

And if it does, what might that impact be?

Answer 1

Overall it is beneficial for real wage levels, via the multiplier -- knock-on -- effect of higher world trade (which grows faster than world GNP) on the growth of first-world economies. The sustained recession-free nature of growth in the first world in the past two decades is substantially due to the emergence and boom-boom growth of China. Lower prices for a huge range of consumer goods made possible by making them in and importing them from China has held down the cost of living in the West (and in E Asia), so boosting our REAL wages at any given nominal wage level. There is also an indirect benefit through lower input costs for things made in middle-income countries like Malaysia and then exported from there to us.

This truth is obscured by the direct effect of holding down actual wages in the West in the short run in businesses which are competing head-on with businesses emerging in 3rd world countries. If many businesses can employ a software engineer in London or California for $x and in Bangalore for $0.3x, then there is an immediate tendency for the price of software-engineer skills (wages) to be falling in the West. But in the medium term what will happen is that people in the West will be displaced out of software engineering altogether into whatever occupations emerge as having the comparative cost advantage here, and the net result will be gain for us all.