This week, the New Yorker's Jim Surowiecky reports on the rising wages of skilled workers in India, and the paradoxical reductions in investment in higher education there, drawing the implication that India's growth cannot continue at its current pace because the supply of skilled labor will not expand commensurately and, as wages rise, the flow of foreign investment will decelerate.

Today, the New York Times reports that despite Romania's economic growth of 7% in 2006, more than 8% of the population have left to work in Western Europe, creating a shortage of workers. The story focuses on a Swiss company that employed Romanians until 2003, but now is importing Chinese workers because of the rising cost of local labor.

Yes, this is another “World Is Flat” story, but with a different angle.  Tom Friedman, (who waited for the boom/bust/boom cycle to turn before trumpeting to the political classes what people who understood the web had foretold ten years earlier) focuses on the contribution connectivity makes to the mobility of work--call centers in India being the now-tired exemplar.

The Romanian story suggests that not only is the work mobile, so are the people.  The European Union, of course, has made one of the great strides in affording people the mobility to seek their highest and best use.

In the 1960s, the term "Brain Drain" suggested the default assumption that people stayed put, and it was the exception for a few elite individuals to relocate.  But as the opportunities in other nations become more visible to all, the barriers that have protected local job markets are falling, and labor markets become more efficient.  The Economist published a good overview of this trend last October, concluding that “the brain drain is giving way to brain circulation.”

One of the implications that seems to me to get too little attention in the political press is the straightforward fact that US workers are overpriced in the world market, though of course there are specific exceptions. This means that average US wage growth will continue to stagnate until equilibrium is reached, just as under priced Indian resources will continue to experience strong wage increases.

Since this is result of unstoppable trends, we’d better start revising our assumptions about what healthy wage growth to expect in the US. Otherwise, political pressures to show growth in real wages will lead to inflationary economic policies, trade policy that harms consumers, and a decline in US innovation as we close our Universities to students.