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Competing More Against Other Workers in the First World

Here’s a letter to the Boston Globe:

Richard Klovdahl worries that “we have spent the last 30 years ‘competing’ for our jobs against workers in Third World countries” (Letters, Jan. 14).

Mr. Klovdahl is haunted by the myth that low hourly wages alone make workers attractive to profit-seeking businesses.

From 1980 through 2009, the 160 countries that UNCTAD classifies as “developing” – what Mr. Klovdahl calls “Third World” – together received 30 percent of total global foreign direct investment.  The eight G8 countries, whose workers earn some of the world’s highest wages, received 43 percent of this investment.  The U.S. alone, during this time, received 18 percent of foreign direct investment – an amount far larger than was received by any other country on earth.*  (Over those same 30 years, inflation-adjusted compensation for the average civilian worker in America rose by 25 percent, despite the U.S. labor force expanding by 44 percent.**)

This evidence on international investment flows should calm fears that businesses are eager to shift operations from the U.S. and other developed nations in order to set up shop in the Third World.

Donald J. Boudreaux

* Inward FDI flows are calculated from this table.

** See here and here.