Why are you asking me for personal information?We collect personal information including your contact and demographic information for the purposes of identification, account administration and display of personalised content and advertising. Held just days after the presidential election, the 2016 Leadership Conference will explore America’s post-election landscape and show you how TFAS and FTE are building responsible future leaders to lead our nation toward a brighter tomorrow. Acting as consumers, producers, workers, savers, investors, and citizens, people respond to incentives in order to allocate their scarce resources in ways that provide the highest possible returns to them. When people buy something, they value it more than whatever it costs them; when people sell something, they value it less than the payment they receive.
Despite mutual benefits from trade among people in different countries, many nations employ trade barriers to restrict free trade for national defense reasons or because some companies and workers are hurt by free trade.
When imports are restricted by public policies, consumers pay higher prices and job opportunities and profits in exporting firms decrease.
Employers are willing to pay wages and salaries to workers because they expect to sell the goods and services those workers produce at prices high enough to cover the wages and salaries and all other costs of production.
To earn income, people sell productive resources.  These include their labor, capital, natural resources, and entrepreneurial talents.
A wage or a salary is the price of labor; it usually is determined by the supply of and demand for labor.
More productive workers are likely to be of greater value to employers and earn higher wages than less productive workers. People’s incomes, in part, reflect choices they have made about education, training, skill development, and careers.  People with few skills are more likely to be poor. Changes in the structure of the economy, the level of gross domestic product, technology, government policies, and discrimination can influence personal income. In a labor market, in the absence of other changes, if wage or salary payments increase, workers will increase the quantity of labor they supply and firms will decrease the quantity of labor they demand. Changes in the prices for productive resources affect the incomes of the owners of those productive resources and the combination of those resources used by firms. Changes in demand for specific goods and services often affect the incomes of the workers who make those goods and services. Economic growth is a sustained rise in a nation’s production of goods and services.  It results from investments in human and physical capital, research and development, technological change, and improved institutional arrangements and incentives. Historically, economic growth has been the primary vehicle for alleviating poverty and raising standards of living. Economic growth creates new employment and profit opportunities in some industries, but growth reduces opportunities in others. Investments in physical and human capital can increase productivity, but such investments entail opportunity costs and economic risks. There is no economic justification for slave labor.  It is vitally important that, before exploring the issues of wages and labor conditions around the world, we make a clear distinction between forced and voluntary labor. The threat of force fundamentally violates market conceptions of property rights – that the worker owns his labor and has the right to sell it freely in the labor market. Economists recognize that involuntary labor exists throughout the world, and is, in fact, sometimes found in the United States.  Forced labor, in any form, is considered a true economic loss. Indirect involuntary labor exists when workers are put into high-risk situations without their knowledge, as for example, when toxic chemicals are used in production without workers’ knowledge or understanding of potential harm.
In analyzing this issue, it is important to remember that the employment context matters.  Economic inquiry into wages and worker conditions in export industries must be made in the context of productivity levels of a given economy, rather than being compared to wage rates in the United States.
Wage rates vary because of productivity differences among industries, but issues of technology, human capital, and infrastructure that determine overall levels of productivity affect all production in a nation’s economy. If the general level of worker productivity is low, wage rates in all industries, not just exports, reflect this condition. What are the appropriate age limits for workers in other economies and other political situations?
Answers that fail to acknowledge the economic realities of poor nations offer little more than rhetoric.


An objective effort to address the questions raised by sweatshops is hampered by the difficulty of obtaining data necessary to provide a thorough analysis of less developed economies. Keeping in mind very real concerns about the availability and reliability of data, and the low productivity characteristic of poor nations, it is still instructive to address the primary questions and arguments offered by those concerned with wages and working conditions in foreign industries that export to U.S.
However, the fact that workers choose to enter these jobs tells us that the wages offered must be competitive with wage rates in the economy at large. In labor markets based on voluntary exchange, a worker must perceive that she will benefit by taking one job over another or over the option of not taking a job – or she would not take the job. Support for the contention that export industry wages are not exploitative comes from comparing the income of workers in so-called sweatshops to a nation’s per capita GDP.
Offering as evidence the low dollar-equivalents of foreign wages, sweatshop protesters claim that even if workers’ lives are improved by working in export factories, they are still being exploited and companies should raise wages. It is often forgotten that money is just a medium of exchange and an efficient way to measure value; it has no inherent value.
Real value is in the consumption of goods and services, and consumption is limited by an economy’s ability to produce. If an economy produces more goods, there is more for people to consume (or to trade for other things to consume) and, depending on how that extra production is distributed, everyone is better off. Time and context matter.  Leisure, increasingly safe work places, and childhood spent in school and play are a function of wealth.
This pattern of development has been repeated many times throughout the world during the last century. We cannot objectively consider the case of sweatshops if we ignore opportunity cost and the realities of the limited alternatives available to people in poor nations. In The Travels of a T-Shirt in the Global Economy, Georgetown University professor Pietra Rivoli reinforces the often over-looked reality that sweatshops represent opportunity for people with limited choices.
Productivity is the answer.  With inadequate infrastructure and without much human and physical capital, productivity in developing nations is low and poverty is rampant.
In 1950, both nations were poverty stricken, war torn, and had little in the way of natural resources; they were among the poorest of nations. Within 40 years, they had become the 2nd and 3rd wealthiest nations in Asia, as measured by per capita GDP. GDP per capita (GDP divided by population) is an average measure of individual yearly income. A worker in the apparel (export) industry makes $1250, about 75% of the per capita income of $1660.  Is this a high wage or a low wage? We would expect the income of a textile worker to be somewhat lower than average because textile jobs are low-skill occupations.  But how much lower than average is reasonable? By comparison, an American apparel worker makes only about 56% of the average American income.
In relative terms, then, the Guatemalan apparel worker is better off in his economy than his American counterpart is in the U.S.
Again, in relative terms, the apparel worker is better off than his countrymen in other low-skill occupations. Statistical evidence of endemic poverty, rather than poverty restricted to export industries, is even more stark in Indonesia. In Vietnam and Honduras the wage paid in sweatshops is actually higher than per-capita income; without apparel-industry jobs, the per-capita income of the country would be even lower. In developed counties, apparel industry jobs are low-skill, low-wage employment.  By contrast, the combination of little technology, little human capital development and poor infrastructure causes the overall level of productivity to be lower in a developing nation like Vietnam, and makes working in a sneaker factory a good job. In truth the work does look tough, and the conditions grim, if we compare Vietnamese factories with what we have back home. Raising wages for workers raises the costs of production.  In a competitive market, higher wages have negative impact on total employment unless caused by an increase of the price of the final product or an increase in the labor productivity.
A net decline in well-being as the loss to those displaced or denied jobs is greater than the increase in welfare for those able to keep the now higher paying jobs.


The replacement of children and women by adult male workers, attracted from other employment by the higher wages. As children and women are crowded out of the factory jobs, either family incomes and standard of living fall, or the women and children move to lower-paying jobs, often in worse working conditions. Protesters often ignore the reality of opportunity cost – children take factory jobs because it is their best alternative.  Poor children displaced from factory jobs are not likely to spend their days in leisure or even in attending school. An increase in the rate at which labor is replaced by capital as businesses invest in machinery and technology to replace high-priced, low-skilled labor.
As the chart on the next page indicates, although market wage rates reflect worker productivity, labor cost may not. In economies, like those of Europe, where generous benefits (and mandated minimum wage laws) increase labor costs, unemployment rates in excess of 8% have been common for the last several decades.
Similarly, the argument that foreign workers must be exploited because they receive so little of the final value of a product overlooks the realities of competitive markets and the trade impacts of raising workers’ wages. Without an increase in the market price of shoes (remember hat Nike does not determine the price; the market does), paying workers more means falling below normal profit – the level of profit necessary to keep an entrepreneur in business. If Nike falls below normal profit, it will exit the shoe business and all the workers will lose their jobs. Even if the market price of shoes does rise, the law of demand for labor still holds – at higher wages, Nike will demand fewer workers. If demand for labor is inelastic, Nike will pay more in total wages, but employ fewer workers, or it will relocate where workers will accept lower wages.
In demand is elastic, not only do many workers lose their jobs, but total spending on labor by Nike in the affected area falls, implying lower total income for the community. Exports produced in developing countries are characterized by highly elastic demand, meaning that pressure on American companies to raise wages in foreign factories is likely to reduce overall employment even as it improves the standard of living of those employed. The most extreme opponents of sweatshop labor argue that we should not trade at all with developing nations because to do so or to invest in factories overseas forces foreign workers to produce low quality goods and keeps them impoverished.
Nor are workers forced to work in export factories; export industry jobs are considered good jobs and are sought after. Foreign demand and foreign investment increase the aggregate demand for labor.  Without jobs in export industries, many more people would be unemployed or wages in the country would fall in order to preserve full employment. It has bypassed former teen staple Abercrombie & Fitch to become the most loved brand by teens, according to a recent survey executed by Piper Jaffray. I traveled (sic) to Ho Chi Minh to examine the effects of multinational corporations on poor countries….
Either way, there will be less employment for workers where the wage increase goes into effect. In September, the company introduced its new cold weather line, as well as new apparel with cooling technology. They compare the work at Nike with the way they lived before, or the way their parents or neighbors still work. The average pay at a Nike factory close to Ho Chi Minh is $54 a month, almost three times the minimum wage for a state-owned enterprise. Ten years ago, when Nike was established in Vietnam, the workers had to walk to the factories, often for many miles. Another three years later, they could afford scooters, so they all take the scooters to work (and if you go there, beware; they haven?t really decided on which side of the road to drive).



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