Multinational corporations already pay about double the local wage levels in Third World countries, even though they do not pay as much as workers receive in more industrialized nations.
Insisting that multinational corporations raise their employees’ pay scales in these Third World countries may sound good to those who do not think beyond stage one. But the consequences of such higher pay scales being imposed by law or public pressure can be that it becomes economically preferable for the multinational corporation to discontinue hiring many Third World workers whose output is worth less than what third parties want them paid.
This in turn means that Third World workers lose not only jobs that pay more than their local alternatives but also that they lose the human capital that they could acquire from working in more efficient enterprises.
Contrary to theories of “exploitation,” most multinational corporations focus the bulk of their operations in countries where pay scales are high, rather than in countries where pay scales are low.
The United States, for example, invests far more in the affluent, high-wage countries of Europe and Japan than in India or in all of poverty-stricken sub-Saharan Africa.
While those who fear exploitation of low-wage workers may regard that as a good thing, it is in fact tragic that so many desperately poor people are denied both much-needed income and opportunities to increase their human capital and, with it, their countries’ prospects for future prosperity.
To the extent that their would-be benefactors succeed in raising their pay scales without being able to raise their productivity, the net result is likely to be pricing them out of jobs. As a noted economist once said: “We cannot make a man worth a given amount by making it illegal for anyone to offer him less.”