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June 16, 2007

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tt

Suppose that the inequality was obtained because a corporation fires a long-term employee to employ an (almost) equally productive young american at one-tenth the wage. Should we consider that differently from the outsourcing case?
You may think the example is far-fetched for U.S. but it is not so far-fetched for some european countries where rigid labor laws make pretty hard for firms to hire/promote young productive citizens.

If the answer is yes, it seems to me that the issue revolves once again around the different welfare weights placed on national citizens and strangers.

p.s.: congratulations for your blog, it is really interesting!

paine

"people are concerned about globalization not (just) because their pocketbooks are adversely affected but because they do not think its outcomes are right or fair. Issues of labor rights, environment, and pharma patents excite people because of the sense that the rules are not right"


bingo

fair trade but what about a fair trade dollar vis a vis
fiddled south currencies ???

the apple cart may need to be over turned here
even if the results are
most uncertain

fairnesss demands a level forex field
if competition between us and the south dynamos
is to be
exchange rate neutral

right now
the rmb vs the dollar and euro
is well below half ppp
that want produce fair trade
even with
free" unions
and "green" regs

Alex

This is a fantastic post. Please continue to point this out and try your best to get through to others in your field!!

As you mention, there certainly exists a slippery slope towards protectionism. But narrow minded thinking will take us there more surely than anything else.

save_the_rustbelt

There is no guarantee that increased taxation through increased progressivity will do anything to cure growing inequality.

The focus on taxation tells me that 1) alot of our experts are short of ideas and 2) many economists will not admit errors in the freer trade religion they are peddling.

Joe

How strong is the Trade-Wage Nexus?

In a 2005 paper (http://www.frbsf.org/economics/conferences/0502/InternationalAdjustment2.pdf) Ronald McKinnon of Stanford University shows that:

Between 1994 and 2003, money wage in manufacturing increased by about 13% in China and by just 3% in the United States; i.e., wage rate of an average Chinese worker is catching up rapidly to that of an average American worker (this should allay the fears of Krugman et al., that China's unlimited pool of industrial reserve army for ever would sustain its low-skill intensive industries).

He also shows that this 10 percentage-point differential in growth in wages reflects the differential growth of worker productivities: about 12.3% in China versus 2.7% in the US. (Chinese manufacturing started with low levels of skills and technology and therefore low wages. Faster productivity growth in Chinese manufacturing therefore arose from the upgrading of the skills of the labor force.)

Can't we now conclude, with the author, that changes in wage rates, in rich and poor countries alike, are not simply due to changes in demand-supply dynamics brought about by international trade?

Joe

A word of apology: my previous comment was meant for the previous entry of Dani Rodrik. My mistake.

dissent

"Can't we now conclude, with the author, that changes in wage rates, in rich and poor countries alike, are not simply due to changes in demand-supply dynamics brought about by international trade?"

In the long run - yeah as in we are all dead.

There are 900 million yet to be integrated into China's labor force. Their wages are 1/30th of ours. Should we wait 50 to 100 years for the global economy to work it's hypothetical magic? I'm not interested. Only an idiot would trust the ideologues telling us to believe, just believe, this will all work out in the long run. Won't get fooled again!

Joe

Dissent:

The China-fear is part of a long-standing tradition in America of fearing emerging economies - starting with fears of Japanese one-dollar blouses destroying the US textile industry in the 1930 to the fear of NIEs imports during the 70s & 80s (the so-called Yellow perils).

spencer

Joe -- in your example of a 10% growth in the wage differences being offset by a 10% growth in the productivity difference the relative competitiveness of US and Chinese manufacturing have not changed. Consequently, there is no reason to expect a change in the trend growth rate of the US trade deficit and the displacement of US manufacturing labor by Chinese labor.

paine

joe
writes

"wage rate of an average Chinese worker is catching up rapidly to that of an average American worker "

key word .."rapidly "

relative to what joe ???

rapidly enough to "save "
our big high middle
wage rate structure ????

say neutrality requires
a four fold increase in chinese wage rate
10% annual closing rate
28 years
by then
a lot of us may be watching thru a window
as undoc mexicans
flip big mac burgers
for the
"credit card " customers
and wishing

"ggee if only
these f ing
food stamps covered fatty junk eats
like that ..."

but nope

it'll be strictly walmart bought --"good for ya "---
st hillburgers
for us dole-ites

( soypaste fried with
sunflower oil
on high fiber rye crisps )

Joe

Spencer:
The productivity growth of this very high order will eventually taper off in China, which also means that faster money wage growth will over time reduce China’s competitiveness vis-à-vis the US. I guess.

Marcos Ancelovici

I share Rodrik's point that ethics plays a role, but so does politics. For some reason, economists often downplay political factors in their analysis. I discuss political factors on my blog at:
http://mancelovici.wordpress.com/2007/06/18/what-determines-peoples-position-toward-globalization/

mik

"The productivity growth of this very high order will eventually taper off in China, which also means that faster money wage growth will over time reduce China’s competitiveness vis-à-vis the US. I guess."

Excellent. This is as good as gold. Can I take this and put it in a bank?

Is the whole Free Trade Religion just as good as this?

Just in case that when I'm 80, trade deficit with China will be 3 Trillion/month.

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How does US and Chinese manufacturing have not changed. Consequently, there is no reason to expect a change in the trend growth rate of the US trade deficit

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