In the Third World, labor can appear extraordinarily cheap. In my city of Bhopal, for example, a daily-wage worker can be hired for only a few dollars a day, with no paid holidays, medical insurance, pension, or other benefits.

But the wage on a spreadsheet is not the real cost of employing someone. Low productivity, poor workmanship, mistakes, waste, supervision, delays, unreliability, and the need to redo work can make seemingly cheap labor extraordinarily expensive. In a complex economy, small failures of quality and responsibility compound rapidly.

This is one reason I have long been skeptical of the idea that low wages automatically give poor countries a competitive advantage. Economic productivity depends not merely on what a worker is paid, but on the cultural and institutional habits surrounding work: competence, honesty, attention to detail, accountability, and the willingness to do a job properly even when nobody is watching.

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