Cutting payroll is the wrong way to compete in the global economy, according to a researcher with the United States Business & Industry Council, a Washington-based advocacy group.
Alan Tonelson, who represents small- and medium-sized manufacturers, called this “ultimately a losing proposition” and feels that no amount of labor-saving technology can offset the low wages, huge pools of workers, and lower overall capital costs in China, India, and some Third World nations.
In his book, Race to the Bottom, he writes that the United States “will never be able to compete with them simply by cost-cutting.”
He points out that in the past 10 years, imports have gained a larger share of the U.S. home market, and that free trade agreements, beginning with NAFTA in 1994, fueled a surge in imports by ”sending jobs, production and, increasingly, research and development overseas.”
In an interview with the Akron Beacon Journal, he acknowledged that some U.S. manufacturers (i.e., Illinois-based equipment company Caterpillar) have managed to “keep their employment levels pretty high by cutting wages.”
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He highlights its “two-tier wage systems” where workers are now making $10 to $14 an hour at jobs that had paid double that or more.
He thinks that ultimately, the U.S. middle class will be gutted.
”The division of the country into a relatively small number of high-income earners and a much larger pool of working poor will greatly accelerate. In other words, the social profile of the United States will start to resemble that of Third World countries,” he said.