Moving Up the Ladder

by on February 19, 2007

Joe at Techdirt reports on some great news from India:

We’ve written in the past about various problems brewing at Indian outsourcing firms that are increasingly facing talent shortages and competition from lower-cost competition. Om Malik has an interesting roundup of a fresh set of articles all pointing to continued troubles at these firms. The big problem continues to be the shortage of labor, which is the result of a few different factors. Many employees who got their start at one of these outsourcers are now going to business school, hoping to move up to higher value work. Furthermore, these jobs aren’t viewed as highly by college graduates as they used to be. Increasingly, talented coders have the opportunity to work directly for the likes of Google and other international tech firms. And there remains a shortage of top-quality education opportunities, preventing many from getting trained and choking off the overall pool of labor. None of this necessarily spells doom for these companies. One way they can cope is by moving up the food chain, offering services of higher value than simple outsourcing or call-center work. And, of course, they don’t have to limit themselves to Indian employees, they can hire talent from the US as well.

When the Lou Dobbses of the world complain about globalization, they like to paint a picture of an inexaustible supply of cheap labor overseas. This is bad for two reasons, we’re repeatedly told: it’s unfair to the overseas workers who are “forced” to work for low wages, and it’s unfair to American workers who can’t compete against foreign competition.

This description only makes sense if we myopically focus on the present. The pool of cheap labor abroad is deep, and in the short term the situation can look pretty bleak for overseas workers. But in fact, the pool is not bottomless. Eventually, supply and demand come into balance, competition for workers intensifies, and wages start to rise.

But the more important phenomenon is the one Joe describes here: as a country’s economy grows and its workers grow more productive, the most talented worker begin working their way up the food chain. Skilled workers start going to business school or starting their own companies. Workers who used to assemble cheap plastic toys start producing consumer electronics.

Eventually, we wake up and discover that another country has joined the ranks of the middle class. It happened with Japan in the 1970s. It’s happening in South Korea and Taiwan now. If China and India continue with their current policies of economic liberalization, they’ve got a good shot at pulling off the same trick.

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