Do U.S. multinational businesses exploit workers in developing countries? According to critics, maximizing profits is the only thing that matters to multinationals: They search the globe for the cheapest labor when deciding where to locate factories. The only gain from this behavior, critics argue, accrues to the owners of the businesses who have shifted operations from low-wage factories in industrialized countries to poverty wage factories in developing countries. According to critics, workers in developing countries are underpaid.
Indeed, multinationals are in business for profits. But this does not seem to be troublesome for many workers in developing countries who compete to work for them. People who go to work for a foreign-owned business do so because they prefer it to the alternative, whatever that may be. In their own view, the new jobs make them better off.
Assume that the critics are right and that these workers are being exploited. One remedy would be to admonish multinationals for operating in developing countries. If multinationals stopped hiring workers in developing countries, the workers would, in their own estimation, become worse off. Another course is to entice multinationals to pay workers in developing countries wages that are as high as the wages paid to workers in industrial countries. This would discourage direct investment in developing countries. Why? Workers in developing countries are paid less than workers in industrial countries because they are generally less productive: They often work with less advanced machinery and the surrounding infrastructure is inadequate, which reduces productivity. These workers are attractive to multinationals, despite their lower productivity, because they are cheap. If you were to wipe out that offsetting advantage, you would make them unemployable. Bucking under pressure to extend U.S. or European pay scales to developing countries could mean shutting down local factories-hurting people, not helping them. Productivity aside, should "responsible" multinationals pay their developing country employees more than other local workers? To hire workers, they may not have to provide a premium over local wages if they can offer other advantages, such as a modern factory in which to work rather than a sweatshop. By participating in the local labor market and adding to the total demand for labor, the multinationals would most likely be increasing wages for all workers, not just those they employ.
However, evidence suggests that multinationals do pay a wage premium that apparently reflects the desire to recruit relatively skilled workers. Economists at the Peterson Institute of International Economics estimate that during the 1990s, the wages paid by multinationals to poor country workers were about double the local manufacturing wage; wages paid by multinationals to workers in middle-income countries were about 1.8 times the local manufacturing wage. Do U.S. multinationals underpay workers in developing countries? By U.S. standards, they do. But U.S. standards are irrelevant in developing countries: Few workers are paid at U.S. levels in these countries. The key point is that by local standards, these workers typically fare quite well.

What do you think? Do you feel that multinational firms provide overall benefits to people in developing countries?