Wednesday , November 14 2018
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Wages Reflect Underlying Economic Realities

Summary:
Here’s a letter to the Wall Street Journal: Lamenting that final assembly of manufactured goods occurs today mostly in low-wage countries rather than in the United States, Walker Martin mistakes effect for cause (Letters, Oct. 20). For much of the 20th century American workers were (by the standards of the day) paid well to perform the sort manufacturing tasks that are now performed abroad because American workers back then had a comparative advantage at performing those tasks. But contrary to Mr. Martin’s implication, having a comparative advantage at performing those tasks was not the result of the high pay that American workers received to perform them.  Instead, having a comparative advantage at performing those tasks was the source of the high pay that American workers received

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Here’s a letter to the Wall Street Journal:

Lamenting that final assembly of manufactured goods occurs today mostly in low-wage countries rather than in the United States, Walker Martin mistakes effect for cause (Letters, Oct. 20).

For much of the 20th century American workers were (by the standards of the day) paid well to perform the sort manufacturing tasks that are now performed abroad because American workers back then had a comparative advantage at performing those tasks. But contrary to Mr. Martin’s implication, having a comparative advantage at performing those tasks was not the result of the high pay that American workers received to perform them.  Instead, having a comparative advantage at performing those tasks was the source of the high pay that American workers received to perform those tasks.

The comparative advantage at final assembly of consumer goods has since shifted to workers in low-wage countries. Yet it has done so because American-workers’ comparative advantage has itself shifted to the performance of even higher-valued tasks. This fact is why relatively little final assembly is performed today in the U.S.: Americans’ wages in their current jobs are so high that manufacturers seeking to employ workers to perform final-assembly jobs cannot afford to bid American workers away from these workers’ current, higher-paying jobs. This reality should be celebrated rather than lamented.

Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030

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Don Boudreaux
He is a professor of economics at George Mason University in Fairfax, Virginia. Previously, he was president of the Foundation for Economic Education.

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