Workers of the Western world

December 2, 2011

Branko Milanovic has some good news for the squeezed Western middle class — and also some bad news.

Good news first: the past 150 years have been an astonishing economic victory for the workers of the Western world. The bad news is that workers in the developing world have been left out, and their entry into the global economy will have complex and uneven consequences.

Milanovic’s first conclusion is contrarian, at least in its tone. After all, with unemployment in the United States at more than 9 percent and Europe struggling to muddle through its most serious economic crisis since World War II, Western workers are feeling anything but triumphant.

But one of the pleasures of Milanovic’s work is a point of view that is both wide and deep.

Milanovic, a World Bank economist who earned his doctorate in his native Yugoslavia, has an intuitively international frame of reference. Both qualities are in evidence in “Global Inequality: From Class to Location, From Proletarians to Migrants,” a working paper released this autumn by the World Bank Development Research Group.

Milanovic contends that the big economic story of the past 150 years is the triumph of the proletariat in the industrialized world. His starting point is 1848, when Europe was convulsed in revolution, industrialization was beginning to really bite, and Karl Marx and Friedrich Engels published the Communist Manifesto.

Their central assertion, Milanovic writes, was that capitalists (and their class allies, the landowners) exploited workers, and that the workers of the world were equally and similarly oppressed.

It turns out that Marx and Engels were pretty good economic reporters. Surveying the economic history literature, Milanovic finds that between 1800 and 1849, the wage of an unskilled laborer in India, one of the poorest countries at the time, was 30 percent that of an equivalent worker in England, one of the richest. Here is another data point: in the 1820s, real wages in the Netherlands were just 70 percent higher than those in the Yangtze Valley in China.

But Marx and Engels did not do as well as economic forecasters. They predicted that oppression of the proletariat would get worse, creating an international — and internationally exploited — working class.

Instead, Milanovic shows that over the subsequent century and a half, industrial capitalism hugely enriched the workers in the countries where it flourished — and widened the gap between them and workers in those parts of the world where it did not take hold.

One way to understand what has happened, Milanovic says, is to use a measure of global inequality developed by François Bourguignon and Christian Morrisson in a 2002 paper. They calculated the global Gini coefficient, a popular measure of inequality, to have been 53 in 1850, with roughly half due to location — or inequality between countries — and half due to class. By Milanovic’s calculation, the global Gini coefficient had risen to 65.4 by 2005. The striking change, though, is in its composition — 85 percent is due to location, and just 15 percent due to class.

Comparable wages in developed and developing countries are another way to illustrate the gap. Milanovic uses the 2009 global prices and earnings report compiled by UBS, the Swiss bank. This showed that the nominal after-tax wage for a building laborer in New York was $16.60 an hour, compared with 80 cents in Beijing, 60 cents in Nairobi and 50 cents in New Delhi, a gap that is orders of magnitude greater than the one in the 19th century.

Interestingly, at a time when unskilled workers are the ones we worry are getting the rawest deal, the difference in earnings between New York engineers and their developing world counterparts is much smaller: engineers earn $26.50 an hour in New York, $5.80 in Beijing, $4 in Nairobi and $2.90 in New Delhi.

Milanovic has two important takeaways from all of this. The first is that in the past century and a half, “the specter of Communism” in the Western world “was exorcised” because industrial capitalism did such a good job of enriching the erstwhile proletariat. His second conclusion is that the big cleavage in the world today is not between classes within countries, but between the rich West and the poor developing world. As a result, he predicts “huge migratory pressures because people can increase their incomes several-fold if they migrate.”

I wonder, though, if the disparity Milanovic documents is already creating a different shift in the global economy. Thanks to new communications and transportation technologies, and the opening up of the world economy, immigration is not the only way to match cheap workers from developing economies with better paid jobs in the developed world. Another way to do it is to move jobs to where workers live.

Economists are not the only ones who can read the UBS research — business people do, too. And some of them are concluding, as one hedge fund manager said at a recent dinner speech in New York, that “the low-skilled American worker is the most overpaid worker in the world.”

At a time when Western capitalism is huffing and wheezing, Milanovic’s paper is a vivid reminder of how much it has accomplished. But he also highlights the big new challenge — how to bring the rewards of capitalism to the workers of the developing world at a time when the standard of living of their Western counterparts has stalled.


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Thank you for a most interesting article. There is just one fundamental flaw with a geopolitical view of the world where technology facilitates workers ‘exploitation’. It is morally indefensible to go overseas, where corporations can get “value for their money” by ’employing’ those low-paid foreign workers who are not protected by rigorous labour laws like ours, or have decent working conditions like we do! So, instead of subscribing uncritically to the ‘business’ mantra of seeking the lowest common denominator (going where labour is cheapest regardless of the inferior let alone inhumane working conditions), perhaps we should be seeking to export our “high standards of humanity” as manifested in our rigorous labour laws and humane working conditions to those unfortunate ones. This is especially the case when our amoral ‘captains’ (Managers) of industry, like that hedge fund manager in New York who was quoted in this article, basically arguing for the West to rid itself of our “high standards of humanity” so that our own workers (“the low skilled American workers who are the most overpaid worker in the world”) should become like their undignified counterparts in the developing world!

Posted by SetiOne | Report as abusive

Wonderful column!

“OWC” people and their sympathisers now have no reason to camp and gripe because the economic engine of America and the western world appears to them a great mystery. In this one place recent history is laid out with the clarity only possible with hindsight.

The future, while not certain in detail, is one that these inept, inarticulate, unorganized and unmotivated people will likely never “get” or meaningfully participate in. They are going to have to get their “stuff” together and learn to work or produce something someone wants at a price said someone will or can pay. Welcome to reality!

Posted by OneOfTheSheep | Report as abusive

All that postulating leaves out so many many factors, such as cost of living, taxes, housing costs,and other things, like medical for instance. What determines if a person is over paid is how much they have left after paying for, housing, transportation, food, clothing, and everything that makes it possible to return to work day after day. If there is any disparity in the west it is how much the guys at the top of every PUBLICALY held company keep for themselves at the expense of those that work at thier direction, and how they use that money. In america it is used by those very same to buy influence in the federal government and protect the current system of distribution or to enrich it for themselves as opportunities present themselves primarily, and to keep those workers from gaining influence at any government level, that would lessen thier gains, secondly, and lastly to allow them to play the game who ever dies with the most wins the game, as if they can take it with them.

Posted by richr44 | Report as abusive

I cannot see anything novel or profound in the ideas you credit to Branko Milanovic.

It is stark staringly obvious that, building on a long-ish period of economic expansion and latterly, over-free money supply, values placed on assets and the cost of labour in western economies have ballooned relative to those in the LDC’s. Now that some of those LDC’s are showing clear signs of being just as smart and productive as the West (Brazil, Malaysia, China, etc), but at a much lower level of cost, those high values put on labour and assets in the West look increasingly hard to justify, and increasingly unsustainable in a globalised economy. The West has placed itself on a high-cost economic plateau from which much internationally tradable economic activity is draining, towards the lower cost emerging economies.

You carefully omit to mention that Marx also observed the self-concentrating character of capital, and predicted that eventually unfettered capitalism would collapse because all the capital would be concentrated in the hands of oligarchs, and the aggregate purchasing power of the masses would be too low to sustain a viable economy.

The situation we are approaching is one where rank and file citizens of the West, both skilled and unskilled are being economically occluded, the real action being between the multinational corporations and oligarchs, and the workers of the emerging economiles. What is needed is impetus towards a global levelling of costs and values so that they are commensurate with current levels of development and production ability, rather than reflecting the now-historical technological and economic superiority of the west.

Posted by FromTheForest | Report as abusive

Why do we have such wide-spread inequalities in the world?
Apart from science, what other factors drove the industrial revolution which brought prosperity to the ‘rich West’ ? Where did the small European countries get the raw materials from ? Oh yeah, colonization! There is no free lunch. The new “high standard” of living was obtained partly from the exploitation of the other regions of the world! No wonder we have such huge inequalities between countries. The world would have been a different place if the ‘rich West’ shared the science and other “good things ” instead of using it to colonize and loot other nations BUT this is hindsight and such an expectation is too naive and idealistic. That’s not how the real world works. The media of the ‘rich West’ conveniently forgets these facts! (While people talk about the rich 1% looting from the poor and middle class 99%, the ‘rich West’ also robbed from the ‘rest’! This is a fact whether we like it or not.) This has definitely led to the widespread inequalities we see in the world!

How can one expect those “high standards” to continue forever? There needs to be an equilibrium!

Thankfully, in the last 50 yrs, colonization ended. Other countries started catching up not only in science and R&D but also in providing basic education to their citizens. The “impoverished” nations now have a huge pool of low wage “unskilled” workers. All of a sudden we now have “unskilled workers” in the developed world who are overpaid to sustain their so called “higher standard” of living obtained partly by their own efforts (science, renaissance etc and partly by looting the rest of the world)

The “developing” world has learnt from history and having wised up is trying to move forward despite it’s flaws and obstacles. The real challenge now is for the ‘rich West’ which has no real good “strategy” to deal with this “new” changes taking place in the globalized world! The developing world despite their perceived flaws are in the right track because deep down they have a burning desire to improve their standard of living!!

What happens if you mix hot water and cold water? You get warm water! If you join “the rich West” with high wages and developing “rest” which has as you say,”undignified” workers with low/cheap wages, what do you get? — An equilibrium wage which is in between! Which essentially leads to a decline in the living standards in the west , with a simultaneous increase in the standard of living in the rest of the world. i.e. a common living standard for all! (whether one likes it or not).

Posted by Arihanth | Report as abusive

There are plenty of people with degrees, credentials, great references and experience, Sheep that support OWS. They are not all a bunch of inept, envious fools that you want to believe. I suppose the reality where the person bagging your crap at Walmart likely has a better education and background that many or most of the customers is something you find wonderful but don’t expect everyone to be dancing in the streets over it.

Posted by DeniseB76 | Report as abusive

Very interesting column. I have to agree that the unskilled workers in the US do indeed get overpaid. For example I am a student in college with little skills to offer yet. However at my job as a swim team instructor I get paid $10/hr. There are many college grads that don’t earn as much! But there is a caveat to this. Living in America is much more expensive than living in New Delhi or Nairobi. Are living costs considered in Milanovic’s study at all?

Posted by jwab | Report as abusive

Chrystia left out how those wages increased. Government laws and enforcement of labor friendly laws. Increasing minimum wages combined with higher and higher government wages helped drive wage growth higher as well. Tariffs and protectionist policies played a part as well. To make the simple assertion that it was the great triumph of capitalism over communism is laughable.

To the hedge fund manager, I would say hedge fund managers are the most overpaid people in the entire world. It could be argued that they actually harm society and weaken genuine capitalism. The overwhelming research on hedge funds shows that they do not outperform the market.

Posted by M.C.McBride | Report as abusive

Be careful of believing “building laborer” is the same thing everywhere. In the USA that person works with a lot of machinery and has high productivity. In China a building laborer may be mixing cement in a wheelbarrow and taking things apart with a sledgehammer. It would be better to see the wages normalized by productivity: I do not think you will find the “low skilled” USA worker nearly as overpaid as the hedge fund manager (his foreign counterparts would be interesting to benchmark).

The USA will lose low productivity, low skilled jobs. The rest of the world bootstraps itself starting with these. Go visit some of these places and you will realize that it is inevitable: people are hungry for a better life, are well aware it is possible, and willing to work darn hard in bad circumstances because their alternatives are worse.

If you live in the first world, you should be a high skilled, highly productive worker. Why not? The opportunity is there, all around you. Yeah, it may take hard work, focus, and sacrifice. If you did not seize it, then don’t be surprised to be in competition with people in the rest of the world who sure are in no doubt that they will seize every chance they can get.

Posted by Tanj | Report as abusive

“Power always thinks it has a great soul and vast views beyond the comprehension of the weak, and that it is doing God’s service when it is violating all His laws.”
John Adams
One tires of the bland aplogists of the corrupt financial class which has brought ruin and social dislocation to millions. The group of arrogant Plutocrats withing America are neither the best nor the brightest…just the most criminal…and their days are numbered.

Posted by johnpatrick46 | Report as abusive


What’s your point? That there will be a few aging hippy types in twenty years wearing a faded “OWS” tee shirt that get together in the park now and then and talk about what “coulda been”? It’s OVER!

The sieges have been broken, the individuals scattered, there is no organization and no goals and no power and no plan; so what’s to “support” and how and for what purpose?

Posted by OneOfTheSheep | Report as abusive

Shareholder capitalism demands that the businesses should employ resources with cheapest overall costs. Therefore, the drive towards cheaper foreign labor is unstoppable. And the “high standards of humanity” is just a hyperbolic expression of upper class guilt – just remember that the workers in the developed world were doomed by the same upper class through force-fed credit binges. So the process of shifting jobs to the developing countries is actually an expression of Darwin’s law of survival of the fittest (in this case the hungriest)!

Posted by jalakhkar | Report as abusive

@jalakhar: The process of shifting jobs to the developing countries is not an expression of Darwin’s law of survival of the fittest because there is no such law.

That idea, that the survival of one is bought at the price of another was introduced by Herbert Spencer who, ironically enough, was concerned with helping to lay a solid ‘scientific’ basis to the project of 19th century Western/European colonial over-lordship which first helped to establish the world as globablised and globablising.

The fact that such lazy nonsense is once again being wheeled out in order to cheerfully gloss over any legitimate questions and objections to current developments I think shows very clearly just how much is at stake for ordinary European workers in the current situation.

I think it is the absolute depth of cynicism to turn the historical oppression of two-thirds of the world, the fact that workers in China or Thailand have to (and have had to since the gunboats of modern global capitalism first appeared) make do with the kind of oppressive work and wage situations which would have turned J.S Mill into an out-and-out socialist, into a justification for turning the screws on European workers.

The same arguments which were once taken as sufficient justification for European economic interventions and deprivations abroad, the laziness of the native population, the lack of productivity and simply being ‘behind the times’, are now the same arguments being applied to the Europeans themselves at home.

We should all be very clear here, hedge fund managers and the like aren’t calling for steps to be taken to close the gap in wages by reversing the (historically over the last century I believe) declining share of wages in global wealth. Rather, it would seem that they would prefer instead to turn the old logic of rapacious capitalist extraction back upon its alma mater.

If it were to have its way, by its nature, I suppose financial capitalism would prefer a situation in which the market determines the value on all things, including wages, purely through a process of internal self-reference. In such a world there would never be any idea of long-term stability that wasn’t somehow itself a product to be sold as such.

Just as 19th century gunboat capitalism showed itself indifferent at best and out-right hostile at worst, to indigenous (or non-capitalistic) social, political and economic arrangements in the colonised world, so too 21st century financial capitalism shows itself indifferent at best to the social, political and economic arrangements of contemporary Europe.

Posted by Boethius | Report as abusive

sad, but very true, asia is hungry and ready,
faster cheaper and better.
any business have to be profitable.
with WTO the world have changed.
but thank to the west, soon we will all progress togather.

Posted by edwong | Report as abusive

Economists are not the only ones who can read the UBS research — business people do, too. And some of them are concluding, as one hedge fund manager said at a recent dinner speech in New York, that “the low-skilled American worker is the most overpaid worker in the world.”

The irony is that the globalization this hedge fund manager touts is precisely the exploitation Marx decries. While this is an interesting article, it leaves out the (deliberate) effects of endless mergers, de-regulation, and wage suppression. These three policies have dramatically reversed any economic gains by working people and the middle class, particularly in the US.

In the US, for example, all inputs to business since 1972 have been allowed to rise except one. Can you guess which one? Right, the minimum wage. If it had been allowed to rise and fall along with other inputs, the US minimum wage should be $16-$18 an hour. And the effects would’ve been absorbed into the economy the same as the rise in oil prices (even the rise due to commodity speculation, too much untaxed money chasing too few goods).

Reversing mergers, in a sensible manner, is one of the key missing steps we need to take to reverse the damage caused by unrestrained capital over the past few decades. We need more economic diversity, more true capitalism, to continue the trend this article so cheerfully promotes (even as the trend is going the other direction). We need governments to step up and balance interests between all players in our society, instead of standing back and letting the aristocrats and monopolists run wild.

Posted by FredFlintstone | Report as abusive


You object to “the damage caused by unrestrained capital over the past few decades” and complain of “…endless mergers, de-regulation, and wage suppression.” Please. You speak of what you do not understand.

Mergers, when they go well (and there is no warranty they will), reduce business costs and increase profits. If the same or more work is then accomplished with less people, the merger increases productivity. Productivity is the “standard of measurement” for management, good and bad. Yes, in most businesses, the simplest and most direct path to higher efficiency is doing what must be done with less people…i.e. jobs are lost.

De-regulation has been rough on unions, but good for businesses and taxpayers. In the airlines, it meant more flew and paid less because of increased competition until 9/11. Since, costs for fuel and security have exploded. Bankruptcies have eliminated the unsustainable agreements dictated by the unions, thus lowering costs, so now we have the “service” comparable to traveling by bus at the cost of traveling by limousine. With a world in flux, few subjects can be examined individually and compared with ten or twenty years ago. Different world.

OSHA and other government alphabet agencies continue to dream up more and more costly regulations for businesses and/or consumers to pay for. Guess what? When the cost of certain projects go up, they don’t get done. When they don’t get done, that’s profits lost and jobs lost. There’s still a lot of this “out there”. Lose-lose for workers, taxpayers, business and government!

If the U.S. minimum wage had risen with inflation since it was $1.00/hr. it would be about $5.50/hr. today. Few unskilled workers are genuinely WORTH the current $7.25/hr. to do something anyone can do with two weeks on-the-job training. Accordingly, “entry-level” positions are disappearing for young people that want to work. Raising the minimum wage is like going faster and faster down the wrong road. Really, really bad idea!

The more a worker is paid, the greater incentive for a business to automate their task. Those jobs don’t come back. Get used to it! When “…governments to step up and balance interests between all players in…society…”, that’s called communism or socialism. Neither are an “easy sell” here in the good ol’ U.S.ofA. When autos replaced horses, those who made buggy whips had to retrain!

If the U.S. minimum wage were the $16-$18 as you suggest there would be NO entry level positions! The whole supply and demand framework would quickly be at risk because making a profit on the work product of each worker becomes much more difficult.

When you see a “shop labor rate” of $70/hr., that means the cost of the workman, including all fringe benefits and employer contributions cannot exceed $35.00. “Take-home” pay for such a person is close to your $16-$18/hr, but we are talking trained and certified people, i.e. “skilled”, not trainees! Current skills are the key to success in any job market. In WW II our government trained millions quickly and efficiently. Why not today?

Posted by OneOfTheSheep | Report as abusive

I think productivity means getting the most out of you workforce, not necessarily reducing it, though in practice this can certainly happen. Increasing productivity opens up the possibility of apportioning resources in directions that may not have been possible when lower productivity was the case. Is it a net drain if instead of staff on an assembly line, heads are put into marketing roles creating, as an example, inbound leads? Few businesses even those with high productivity, would argue they have more resources that they need. Invariably, there are things left undone in any business for lack of resource.

The wage arbitrage of east vs. west is a fact however, and it is no longer necessarily the case that the unskilled US worker has access to better tools. (it still is true more often than not though). I worked for a company that over 15 years grew from zero to 15 million, with probably 40% of its revenues in the USA. We employed fewer people after 15 years than we did in the first year. Turns out none of those high skilled information industry jobs couldn’t be done less expensively overseas, with little diminution in quality. It is not just the low skilled workers who are overpaid.

The fellow complaining about the cost of air travel is all wet…he may carp about getting bus line level service, but flying is still exceptional value.

Posted by Jampot | Report as abusive

I heard this quote a long time ago, can’t remember the source: A successful business deal is when both parties walk away happy. Well “happy” is too strong a word, but the idea is that if the friggin company can’t pay their employees enough to live under a decent roof and have access to medical care etc. then that company should probably go ahead and go out of business and let somebody else give it a try! Of course a business will go after cheap foreign labor. That’s a given. No sense in whining about it. But to say that a worker isn’t “worth” minimum wage is saying that the unskilled worker in the USA should be homeless with no medical care! That’s a very unsuccessful business deal! Why should it be on the workers’ backs to make a company profitable? Only because other costs are fixed and that’s where the flex is. At what price won’t the job be there? At what price will the worker not be there? It’s business. But when people are exploited because of their need to eat then it becomes something else. And preventing that is not called communism. Think of it this way; without the rules there would be no baseball. The third world is going to catch up and businesses are going to have to deal with it. Worldwide minimum wage of ten dollars an hour with healthcare coverage….. It’s coming. Fewer jobs, maybe. But those who seem to want the USA to be more third world in order to compete with the third world, don’t seem to have a grasp of what they are up against or what it means to live that way. Progress is when the standard of living rises. It’s nice when businesses do well and the stock market rises, but it’s not the same thing..

Posted by Sue4 | Report as abusive


I understand your frustration, but “people are exploited because of their need to eat” today all over the world. It is an unfortunate fact of life that has been “with us” since the beginning; and will likely be with us a long time yet, particularly with a world population of some seven billion and climbing.

It takes someone with “more” to be able to hire someone with “less” in the hope that, together, they can produce more than the two of them could produce separately. Let’s call the one with “more” the “employer”, or “business”, or “corporation”. Whatever the name, this is “who” creates the “job” for someone else (the “worker”).

Whether the “worker” is “homeless” or has “medical care” before or after being hired, unless these things are promised by the “employer”, they remain the SOLE responsibility of the “worker”. At ANY time a company becomes unprofitable, the clock is ticking until it’s jobs ALL disappear and it’s “workers” join the ranks of the unemployed. So, once again, while it is a shared responsibility of both management and labor to make and keep an “employer” profitable, if either fails BOTH eventually “pay the price”.

A “Worldwide minimum wage of ten dollars an hour with health care coverage” will not come about in my lifetime or yours. The United States can’t afford that RIGHT NOW, and we’re far ahead of most of the rest of the world economically.

Never, never mix up your aspirations with your expectations!

Posted by OneOfTheSheep | Report as abusive

There is such a huge divide between people who watch the line between fair play and exploitation and those who think that the success of a business is the only priority and to push that until somebody cries uncle and refuses to cooperate. Who is responsible for what, is pure opinion unless there’s a contract. Even if I agree with the opinion it doesn’t really matter. If I don’t agree it doesn’t matter. The loss of the middle class can be counted. The consequences are real and effect everyone. Like global warming, eventually everyone will have to acknowledge that this is not a good direction to be going in. Not many people have wrapped their heads around what it means to lose the middle class and denial is a great talent of most. But this is a problem that needs to be solved, not because I’m a liberal who fell out of the middle class, which I am not, but because what we all have to lose is so worth trying to save. A great divide between the haves and the have nots makes for a very unstable and dysfunctional society, socially and economically. Read some history or check out any third world country where workers are exploited. This is why this article is on the money in terms of a primary issue that needs to be thought about by everyone! It’s a hard nut to crack. And it’s not a partisan issue. It is a long term issue which may be beyond the attention span of anyone with only short term goals.

Posted by Sue4 | Report as abusive


From the Industrial Revolution forward, it was people who could read that could learn and practice a trade without going through an apprenticeship. Those people didn’t “stay on the farm” scratching out a minimal existence. By and large they left the land and moved to the “town” or “city” where others would hire them. In short, they either went into “BUSINESS” themselves, or they were hired by a “BUSINESS”.

Fast forward and understand that our very understanding of “fair play and exploitation” is from a middle class perspective. Our “middle class” quite literally arose from the economic activities of businesses from the mid-eighteen hundreds, yet, as late as the late thirties Roosevelt was promising Americans “a chicken in every pot and a car in every garage”. NO ONE had “health care” unless they could PAY for it PERSONALLY!

“Great divide” notwithstanding, open your eyes! America is at the malls, and they’re SPENDING! With the great majority literate, with cars and all of any kind of food they want to eat (which is why we’re FAT), decent shelter, plus entertainment unavailable to royalty until the last several decades, personal computers, cell phones, etc. your suggestion that American business “exploits” working Americans is nothing short of ludicrous.

The world is in another economic and political convulsion as it transitions from a production basis to an information basis, and there will, once again, be “winners” and “losers”. Hang on. It will be a wild ride, and no one has the steering wheel. We live in interesting times but dangerous ones for those with their eyes closed.

Posted by OneOfTheSheep | Report as abusive