It is not economic illiteracy in my case. Of the many business case studies I have had to analyse, one was to do with a manufacturing company in an industry which customarily outsources production to China. As of the time, Cost of Sales (price of labour and production costs) of this product was just £0.56p.
This coincided with a programme on TV (Horizon?) about a factory in Kirby, Lancs which specialised in goods produced by machinists having to sew up the soft goods for widespread wholesale distribution to retail outlets.
The owner of this factory was filmed visiting his factory outlets in China which did all this seamstress work, as it was much cheaper than paying British labour.
As you know, in recent years, China has been one of the BRIC economies*, and this chap began fretting about the rise of the Chinese middle classes demanding better middle class wages.
So he terminated his contracts with the Chinese producers and set up his factory back home in Kirby, giving jobs to the local ladies for much the same price as before (roughly £0.56 per completed item).
So, this is a clear demonstration that employers will go for the cheap labour options. So yes, higher wages may not benefit 'competitiveness' in the short term, but on an international market, it all levels out. The poorer countries in the EU, such as Romania, used to an average salary of just £200 pcm will come to the UK and consider £13K pa a fortune, but ultimately, they will soon be demanding a par with their British colleagues (and discrimination on the grounds of nationality is technically illegal). So things in the long-term do reach an equilibrium.
One very good reason people set up trade unions was to have a closed shop so that only persons of the right skill level could join, and the rates for the job were kept at a premium to keep out the cheaper undercutters.
And I guess that is what professional bodies - including my own - try to do.
*In economics, BRIC is a grouping acronym that refers to the countries of Brazil, Russia, India and China, which are all deemed to be at a similar stage of newly advanced economic development. It is typically rendered as "the BRICs" or "the BRIC countries" or "the BRIC economies" or alternatively as the "Big Four".