Lower foreign labor costs fall into three categories: nonexistent, chimærical, and temporary.
American labor costs are lower than most anywhere, or were until recently, because our workers are or have been better trained and use more capital-intensive boosters of their value. A Chrysler executive once told me their labor costs in Mexico were equal to or higher than those in the United States, because the workers simply weren’t as good.
Using foreign labor sometimes looks cheaper because externalities haven’t been taken into account. An example is call centers in India. People in India speak English, but their dialect and that of the median American consumer needing help with the product aren’t mutually comprehensible.
In the very few cases where there is a real differential, the workers (and the society they are embedded in) use the new source of funds to leverage a better deal, and worker compensation plus externalities pertaining thereto rise until the situation falls into one or both of the first two categories. This is the way it’s supposed to work. The foreign workers get richer and consumers get cheaper goods, until the sum of direct labor cost and externalities makes the cost of their production equal to everybody else’s. A Mexican friend who knows the US fairly well summarized opposition to it as “Back in your ditch, Pedro, I got motor home payments to make.”
Many businesses contemplating foreign operations miscalculate the labor costs (or, more often, the value of the foreign labor), the externalities, or both, and more of that than anyone likes to admit is driven by faddishness. What usually happens is that a company discovers a category-three opportunity and exploits it, and other “bidness executives” decide to go where all the cool kids are going. (Under the veneer of sophistication and objectivity, people who run businesses are people like everybody else, and just as subject to faddishness and peer pressure as any other people.) When that happens, feedback (“the market”) tells them pretty quickly that they’ve made a mistake.
Business is moving more and more operations overseas because envy, cupidity, and misreading of what is going on has moved more and more of American business into a local version of category two. The general dumbing down of American education, including the wholesale move away from production-related skills and toward those relevant to supposedly higher-status occupations, makes American workers less valuable; hostility to capital formation on the ground that anyone with available capital is “rich” (==evil) and those resources should be seized immediately reduces the availability of labor-value amplifiers in the form of capital investment (e.g., automation). At the same time, more and more externalities are being added in the form of taxes (as much or more the difficulty of navigating the intricacies of compliance as the absolute amount) and increased regulatory burdens (again, as much or more a matter of intricacy and resolving contradictions as absolute impact). The result is moving more and more value-added production from the United States to polities which now fall, comparatively, into category three — especially those whose business environment is deliberately manipulated to keep them there, with China as the canonical example.