"So what exactly is the difference between a shirt made from quality cotton with $15 an hour labor that costs $25 and a shirt made from quality cotton with $1 a day labor that costs $5?"
...
That price would much more likely be $45 or more for the shirt that cost $15 at the factory, and $20-$30 for the cheap one. The next step from manufacturer typically doubles the price, the next step in international transactions typically is a multiplier of 3 to 5 on top of that, and then there's yet another mark-up or two after it gets to the USA or UK or Europe where it will be sold retail, according to the books on India and Red China and Malaysia that I've read (and an econ professor of my acquaintance who was in VietNam doing research).
You're leaving out variables. Price also depends on the label (both highly-promoted "designers" and due to product differentiation), on how much it's been down-engineered (lower-quality design of the stitching pattern, for example), thread-count, weave- or knit-pattern, shipping and other mark-ups along the supply chain.
In your hypothetical example, you're artificially and arbitrarily holding "quality cotton" (i.e. "quality materials") as a constant, and it is a variable. We've seen CNBC video of retail chains arguing to product-inventors and -makers that they should substitute less durable, lower-quality materials, making design changes which would make the product less comfortable, less durable/shorten it's useful life... I.e. to make it cheaper rather than to hold the quality constant and make it more efficiently and less expensively.
You can see it with shirts, shoes, cars, hand-tools, power-tools, machine-tools, sewing machines, sticky notes... just about anything. We've seen a lot of reduction in quality of materials and workmanship as manufacture was moved off-shore while retail prices were held constant or increased, profit rates increased, and compensation packages of many executives soared, while compensation of many (not all) worker-bees was stagnant or fell. We've also seen quality and prices vary with the prices of natural gas and other feed-stocks, cotton, and resulting shifting blends.
It would be different if all the quality options were constantly available in the retail stores, but that's not how it works. They completely remove one set of goods and only offer the new set, so the market is impaired; you don't have the option to merely pick a different item off of the next shelf or buy it at the store next-door. For many many goods the markets have been bifurcated: cheap trash at low prices (but still too expensive for the quality), and hideously expensive retail goods of only moderate quality in many cases. For many goods they don't offer (in some cases even allow) honest country-of-origin labeling (COOL) so that you can choose on that basis if you wish, so that's a throw-back to the old evil pre-market, mercantilist, and hyper-regulated feudal guild and crown-granted monopoly days.
It's all been covered over the last 15 years and more in the media that cover economics and finance and such, a little here and a little there. Once every several years, I run across an article or a bit of coverage on the tube that brings most of the elements together.
"What is the difference between a standard business program (nothing super advanced- a well recognized pattern) turned out by a $9,000 a year programmer in india vs the same program turned out by a $90,000 a year programmer in a 1st world country?"
I try to avoid "standard bidness programs", but many software products (and hardware designed or manufactured using that software) take a dive when they're off-shored. Some US and UK programmers have eked out a living by repairing the software botched by guest-workers or over-seas, but few have the contacts to make a go of it that way. But I know that not every non-USA, non-UK, non-German programmer is incompetent; a very few are quite good. And that's what all the studies tell us to expect; about 1 out of 12 can do the work of the rest of that 12... if he has the time and resources. That's 1 of 12 in the USA, and probably 1 of 12 in Hyderabad or Prague or Kiev. But they often plan to throw 5 less competent, cheaper programmers at a piece of work that 1 good programmer could do better and faster (see, e.g. ye ancient Ill-Begotten Monstrosities tome about _The Mythical Man-Month_).
I've worked with some Germans, Japanese, Polish, Koreans, Chinese, Israelis... who were very good and some who were not.