# Why don't prices of USA labor and Mexican labor equalise?

That Mexicans workers get paid less US workers is a dynamic which motivates the moving of production to Mexico. This idea can be abstracted to Developed Markets (DM) labor and Emerging Markets (EM) labor. This is driving many recent political upsets.

1. Do the proponents of free globalised trade expect the price of labor to converge?
2. Is there evidence of convergence?
3. When will meaningful convergence arrive (example metric EM labor being paid no less than half DM labor)?

So folding in some feedback from commenters about 'why should they?'. Isn't this case analogous to supernormal profits being competed away?

• Why should they? – luchonacho Jan 29 '17 at 16:17
• @lunchonacho: Well, if they don't does it mean those in DMs have to get used to jobs migrating? Will those in DMs have to retrain into jobs not threatened such as hairdressers and motor mechanics? – S Meaden Jan 29 '17 at 16:29
• No, I mean, you seem to be implying that the solely driver of migration is wages. Maybe there is an equilibrium where wages do not need to be equal. For instance, prices in US are probably more expensive, so equal wages does not mean equal purchasing power. I think you should add to your question a basic argument of why you think they should. – luchonacho Jan 29 '17 at 16:39

• Ah, excellent, so a better question would be are unit labor costs converging. – S Meaden Jan 29 '17 at 22:42

Simply, workers in the US can find a job which pays more. They may have to find a different job, and that may require retaining and starting over at entry level.

There is also some convergence of the labor market. As demand for the cheaper Mexican labor goes up, so do their wages. However, the convergence will not be complete and equalize wages as long as workers in the US have access to better paying jobs that Mexican workers do not.

Its my opinion that over the next several decades you will see wage equalization first in sectors that do not have brick and mortar storefronts to interact with their customers.

From that we should see: -Shrinking inequality globally -Reduction in labor discrimination and increased focus on skill based assessment. -Reduction in the wage rates for medium-skilled workers (that is non-specialized workers) in developed countries.

We are seeing that labor components across countries are becoming increasingly freely traded. Alongside this we are seeing transaction costs of labor fall dramatically, labor now is easily searchable and the price for payment processing can be as low as 1%.

Makes you wonder just how fruitful these nationalist movements around the world will be in the coming years without shutting down the internet completely.

• If we look at say the internet wage of countries compared to non-internet you'll see the bulk of the developing world with significantly high differences. For example, Pakistan has an average 'internet wage' of 12 dollar an hour compared to their 'non-internet wage' of just 90 cents. Brazil with a 25 dollar IW compared to 7.6 dollar NIW. South Africa with a 29 dollar IW compared to a NIW of 4.3 dollar. Across all of these you'll see that the wage rates across genders and ethnicity are essentially identical. (PS i suppose usage of the dollar sign is a formatting tool $see?$) – Ian Brigmann Jan 31 '17 at 16:43
• and a great piece on equalizing wage differentials is Milton Friedman's Income from Independent Professional Practice in 1954. His dissertation for heaven's sake; prodigy. – Ian Brigmann Jan 31 '17 at 16:48