One day a real estate investor, sipping $4 coffee at the local Starbucks, is flipping through real estate ads. There are dozens of properties in Florida people are just giving away! He exclaims, “These houses in Newport Beach are going for insane amounts! Just yesterday I sold a one bedroom house on the beach for $1.5 million. Can you believe those fools are giving away their houses for a mere $150,000??? What a great opportunity!” So our foolish investor moves to Florida, buys a dozen of houses for the asking price, and puts them right back on the market for $1.5 million each. Obviously, with every other house on the street going for 1/10th the price, he is laughed out of the market. “It’s not fair!!!!” our investor shouts to the heavens. “Those houses in Newport Beach are selling, why do people not give me a fair price here?”
Seem ridiculous? It is. Yet this is the exact same fallacy people use when they think outsourcing for a lower than US wage is taking advantage of foreign workers. And the fallacy foreign workers make when they think they deserve U.S. wages.
An interview I had today:
Kevin: Now one thing I noticed was that you asked for $4,000 a month. Is this correct?
Kevin: Are you in India or the US?
kiran.1784: I am in India
Kevin: What is your yearly salary requirement in LAC?
Kevin: in Rupees
kiran.1784: ooh It’s 2.04 lakhs/year
Kevin: ok that is not $4,000 US a month. That is about $4,400 a year
kiran.1784: no that is per month
Kevin: As I understand it, 1 LAKH is 100,000 rupees. 100,000 rupees is $2,193 US dollars
kiran.1784: yes exactly
Kevin: If your salary requirement is 2.04 LAKH per year then your salary requirement in US dollars is $4,473 US dollars per year. How are you coming up with months?
kiran.1784: ok so in US dollars it will be 48000$ per year
Kevin: Please explain your calculations to me
kiran.1784: I asked 4000$ per month
so 12*4=48 per year
Kevin: Show me how to get from 2.04 LAKH per year to what you are asking
kiran.1784: If you are intersted in the deal we can continue sir.
Kevin: I’m just trying to understand you. Are you multiplying your yearly price by 12 because I am in the US? And for no other reason? Because if that is the case then we can stop now
kiran.1784: When you have asked for my salary requirements I clearly stated $4000 per month
Kevin: I gave you the benefit of the doubt as per a math error.
However, if that is your salary requirement then you are asking for 10X more than other candidates more qualified than you
in which case we can stop
kiran.1784: so how much you are willing to pay me?
Kevin: Based on your attitude so far, nothing. Thanks for your time
There’s several problems with this line of reasoning.
First, the two goods are not equal. A house in Newport Beach in sunny California weather is more desirable than a house located on former swamplands in Florida. Similarly, from what I’ve seen of interviewing dozens of Indian programmers, US programmers are more desirable. You don’t have the problems with timezones, with slow responses to instant messenger, legal problems of liability and intellectual property, and the simple fact that the US programmers I went to school with are just better programmers than the Indian recent graduates I’ve been talking to.
Second, the demand is lower. If the prevailing wage in India is $5,000, then this is what the employers there will offer. There are very few employees who will demand $50,000 a year because they end up unemployed. There is high demand for game programmers in California because there are a lot of game companies here and few are enlightened enough to let people work at home at all, much less outsource. There is low demand in India for the same reason, and the reasons I pointed out earlier. With lower demand, the price drops.
Third, the supply of cheap employees is higher. If I get 790 job applications asking $5000 a year, and 10 equally qualified job applications asking $50,000 a year, guess who is going to get the job? Now if 790 job openings were to open tomorrow and snatch up the $5000 a year programmers, leaving only the $50,000 a year ones, then perhaps they’d have a chance, and the price would go up. Although in that case they wouldn’t get the job anyway because the goods are not equivalent. Indian programmers are less desirable, and for the same price the job would go to the US programmers instead. In any case, the greater supply, the lower the price.
The lower salaries in India and elsewhere is not exploitation but a reflection of a different cost of living. This is the same reason why programmers on the West Coast in the US make more than those in the East Coast. On the West Coast, houses go for millions of dollars and eating out might be $15 a person. On the east cost, you can eat out for $5 and the houses cost 1/10th as much. We in the West Coast don’t say “You are exploiting those programmers on the East coast!” In fact, the programmers on the East Coast are better off because federal taxes do not account for cost of living in different areas of the country and taxes go up exponentially with income. I know this firsthand, as taxes took 40% out of my last check.
In conclusion, people who say $5 an hour is exploitation are comparing it to their own standards of living, and not those in the country of the person being paid. The only time I agree with exploitation is where tragedy of the commons exist, such as lower prices through environmental degradation or labor exploitation (child labor, slave labor).