iOS app Android app More

Cheap U.S. Labor Used As Leverage To Lower Canadian Workers' Wages

Cheap Labor

The Huffington Post   First Posted: 01/06/12 01:11 PM ET Updated: 01/06/12 01:11 PM ET

The near-standstill in wage growth for American workers hasn't just been good for their employers. It's turning out to be a potential bargaining chip for Canadian companies, too -- at least the ones looking to leverage their employees into accepting smaller paychecks.

A Caterpillar manufacturing plant in Ontario wants to halve its workers' wages, according to The Wall Street Journal. In its negotiations with the autoworkers' union, management is citing a similar Caterpillar plant in Illinois where employees earn less than half of what the Canadian workers make. It's the latest example of how low-wage workers the world over are being forced into an international race to the bottom.

The ongoing trend of wage stagnation for American workers -- median income has barely changed in the U.S. over the past several decades, even as the very highest earners have accrued more and more wealth -- means that workers in the U.S. have become more competitive for jobs that were traditionally reserved for cheaper labor abroad.

High unemployment in the U.S. is helping to depress salaries, since employers have little incentive to pay their workers more when there are so many job-hunters who would gladly step in. The jobless rate has been creeping down since August, and hit its lowest rate in almost three years in December. Still, unemployment remains substantially higher than it was for most of the past decade.

The U.S., with its weak labor market and fragile economy, stands in notable contrast to Canada, where the unemployment rate is 7.5 percent, a full percentage point lower than in America -- meaning that the downward pressure on wages isn't as strong there. While Canada has suffered job losses and reduced output during the global slowdown, hiring restarted relatively quickly there, and households weren't plunged into catastrophic debt on the same scale as in the U.S.

In addition to persistently high unemployment, cheap labor abroad has also weighed on wages in America, as U.S. companies try to keep pace with foreign competitors whose employees work for much less.

To some extent, they're succeeding. Some Indian companies have moved jobs to the U.S., attracted by the low pay thresholds here. Last year, the Swedish home-furnishings company Ikea opened its first factory in America, where employees start at salaries that are less than half the minimum wage common in Sweden, according to the Los Angeles Times.

Meanwhile, the low-wage jobs created in the U.S. often don't pay enough to cover basic living expenses like food, transportation and medical care, for which a salary of about $30,000 a year -- almost twice the federal minimum wage -- is needed, according to a report released last year by the group Wider Opportunities for Women.

FOLLOW HUFFPOST BUSINESS
Subscribe to the HuffPost Money newsletter!