Introduction
The main drivers for economies of scale are cheap workforce, division of labor, and specialization. The two are mostly regarded for achieving a high return on production (Heakal, 2022). Most companies that target to experience economic growth usually seek to operate in an environment with favorable factors of production. For example, China has a highly skilled labor market in the world. Through globalization, Nike has tapped into the Chinese market. The division of labor and specialization within the market has enabled the shoe and sportswear and apparel giant employees to concentrate on specific tasks. In the process, their skills improve hence saving the company production cost and time while at the same time increasing the production. Therefore, this paper will determine how economies of scale have affected wages in the global market, influencing the selling of products and services.
Lowering of Wages
The desire for economies of scale by companies has contributed greatly to globalization. Multinationals such as Nike frequently ship jobs that would have been performed by locals overseas, where they can get low wages to reduce production costs. Globalization has been accredited to enabling this trend and has eliminated high-paying jobs with high wages, especially in the manufacturing and information technology segments, and also impacting low-paying jobs with low wages, such as customer services (Blank, 2017). As a result, many skilled people who the companies could have absorbed into higher wages jobs turn to lower-paying jobs. Over time, this can create a cycle that would further reduce the wages in the countries where the company exits due to an oversupply of skilled workforce and, in the process, lowering the purchasing power of the individuals in the greater market
Stagnation of Wages
The most developed nations, such as the United States, have always blamed globalization for wage stagnation. This wage stagnation results from competition from low-wage developing countries (Lee, 2022). There is a disparity in wages between middle-income countries and developed countries. In an economy where wages are stagnant, demand for optional products always falls, affecting their selling in the market.
The median wages in developed countries are two and half times higher for the same skill in developing countries and five times higher than the low-income countries. Despite the disparity, the new trends in globalization are playing a critical role in narrowing the gap as companies can acquire resources, a conducive business environment, and skilled human resources in new regions to achieve economies of scale.
Growing of Wages
Economies of scale can lead to growing wages in a country. In developed economies like china, with a competitive market, multinationals have a lower cost of operation. Multinationals, for instance, have been able to afford efficient production as they can attract top industry talent than their competitors by offering them higher wages. In addition, growing wages increase the money supply of consumers by having more purchasing power. However, Nike has received backlash over low wages in China (Lemon, 2018). This happens as many big companies shift their operation to China due to the availability of labor.
Conclusion
Companies always struggle to realize economies of scale; this only happens when the firm can produce more products at a reduced cost as they grow. This means the company will stand a better chance of lowering its production cost. Economic growth may be experienced when firms realize economies of scale. Most companies, through globalization, ship their operation to other countries with low wages to achieve economies of scale by reducing the cost of labor, which also enable them to lower the cost of their products in the market. However, due to the demand for cheap labor, most developed nations experience stagnation in wages. This wage stagnation results from competition from low-wage developing countries, which in turn influence the selling of products and services in the global market.
References
Blank, C. (2017). How economic factors affect the pay of employees. Chron. Web.
Lemon, J. (2018). Nike factory workers still work long days for low wages. Newsweek. Web.
Heakal, R. (2022). What are economies of scale?Investopedia. Web.
Lee, N. (2022). Why American wages haven’t grown despite increases in productivity. CNBC. Web.