Hiring a maid in India is very economical. At an hourly rate of Rs. 20 - 50, they are about 100 times cheaper than in the developed world.
Why only maids.. Right from labourers to senior managers; everyone draws so less even at purchasing power parity. This fact is so obvious to most of us that we ignore it rather than question it.
In a free world as now.. why should price of a factor of production be less in one country or more in another. Economics tells us it can only happen if the market is fragmented, the factors don't have complete mobility or they do not substitute each other well.
Economic liberalization has, more than anything else enabled merging of Indian markets of 'factors of production' with the that of other countries. The speed of same gained acceleration with advances in modern communication technology.
If you agree the above with me, the following can be derived:
A. Yes, we were wrong in sealing off our economy from rest of the world. We benefited more post liberalization (this point need not be proved at all!)
B. If that is so, developed world could remain wealthy only as long as people there were paid well. The same could happen only if the factors of production in these countries did not compete with the developing world.
C. Now, that there is competition among factors of production, there is no reason why a maid in US should earn more than one in Gurgaon...
Well.. this looks like a bit of exagerration. How can there be one market for a maid in Newyork and one in Gurgaon. This can only happen if the maids are mobile across continents, which can not be a case in foreseeable future. However, there is something else which has a balancing effect. Let me explain..
Because a maid in Gurgaon comes cheaper (for that matter a truck driver, a daily wage labor, a salesman and most consumer products because of the same and so on); living in Gurgaon is more economical. With lower cost of living, a salaried employee in Gurgaon can manage with a lower salary than in Manhattan. The result is that he eats away the later's job. This job shift happens either through call centers, BPOs etc. where the jobs have most mobility, or through export of products. e.g. Cars being exported. It can happen in other endless ways that the world has recently discovered. Many companies are shifting even their R&D hubs to India only for the same reason.
D. The result is that money is flowing in tier 1 & 2 Indian Cities. People have high paying jobs and money to spend. Everyone wants a maid, and hence demand for maids increases. This increases their numbers and wages, lifts up their standard of living and make them a political cause for leaders like Sonia Gandhi.
E. While for the maid in US, the future is grim. Her employer's job has got bangalored. He now has to content with either 'not so lucrative' job environment or job loss. He can no longer afford her and has to take away her job. Hence, relatively this maid is getting poorer by the day.
The impact the above issue has on the economies of the west is that they get poorer by the day, if not in absolute money terms than as compared to developing countries like us. Their importance in the world economy is reducing with each passing day as compared to India and China. This has also been evidenced in the recent economic crisis where only US and Europe were badly hit.
So next time when your wife cribs about increasing demands of her maid, think again.. This is happening because the 'World is Flat'.
