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Strategies & Market Trends : India Stocks
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To: Julius Wong who wrote (565)7/10/2004 11:57:05 AM
From: Sam Citron  Read Replies (1) of 2517
 
Global Labor Arbitrage "one of the most important mega-trends of our time" - Stephen Roach

I continue to believe that the extraordinary sluggishness of US labor market activity is part and parcel of one the most important mega-trends of our time — the global labor arbitrage. At work are two powerful forces — vast offshore reservoirs of well-educated, low-wage workers and IT-enabled cross-border connectivity of knowledge workers. In the absence of meaningful pricing leverage — after all, the core CPI is still rising at only a 1.7% annual rate — cost cutting remains an absolute imperative for competitive survival in high-cost countries like the US.

With labor accounting for the bulk of Corporate America’s cost structure, the global labor arbitrage has become a principal tactic of competitive survival. This puts extraordinary pressure on headcount and real wages, alike. And it blurs the lines of distinction between tradables and nontradables, as IT-enabled connectivity opens up the possibility of offshore sourcing for a broad array of services companies. Unusual sluggishness of America’s labor market has been a hallmark of this expansion. The global labor arbitrage suggests it is not an accident. A disappointing June labor market survey should not be dismissed as a statistical aberration. As was the case in the first 27 months of this recovery, the June report is probably a much cleaner read on the underlying trend than were the two aberrant observations in March and April.

morganstanley.com
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