Blog: Laws of demand and supply
Dave Leggett | 9 April 2008
As investment flows into places where land and labour is cheap, so the price of sought-after land and labour in these places eventually rises. I believe many Poles are returning from the UK, having made a few bob, to their homeland where wages are now quite a bit higher than they were just a few years ago (the mass exodus in itself also helped to create labour shortages in Poland).
There are signs that labour markets are tight in other places in central/eastern Europe, too. There's a strike on at Dacia over wages which could cause Renault problems if it goes on too long.
And there are labour market pressures emerging in Slovakia, too. The Czech Republic is still cheaper as a manufacturing location than Germany, but the differential is much narrower than it was.
Industrialists concerned over higher costs shouldn't fret too much. This is what economic development is about. Wage rises are part and parcel of it. Over time, when the people in these countries eventually have more disposable income they buy more goods. They will also pay more taxes and some of that should find its way into the EU coffers (and then the next lot of countries requiring development subsidies can be invited in)...
Also, the pendulum may swing slightly so that retaining manufacturing capacity in Western Europe becomes a little more attractive. Swings and roundabouts.
At what point though does a multinational corporation - whatever industry - start to appear exploitative? Is Renault being fair in Romania - squeezing cost there so that it can afford much higher-paid workers doing the same work in France? I think that would be an unfair accusation, but you can see how it might look to a Romanian worker. They might be in the EU club, but they may feel they are not exactly seated at the top table.
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