The Wages of Domestic Protectionism

by Don Boudreaux on May 7, 2011

in History, Regulation

Here’s a letter to the Wall Street Journal:

The National Labor Relations Board is trying to stop Boeing from moving the production of some of its jetliners from Washington state to South Carolina where less-burdensome labor-union privileges will allow Boeing to produce at lower cost (Letters, May 7).  One unintended by-product of Boeing’s move, of course, would be greater competition for workers in the south and, hence, rising wages there.

Uncle Sam’s willingness to deploy brute force to prevent the movement of industries to the lower-cost American south isn’t new.  The most notorious instance of this nasty habit occurred in 1938 when, to strip away the cost advantage enjoyed by their rivals in lower-wage Georgia and the Carolinas, owners of textile mills in New England successfully lobbied Congress and FDR to enact America’s first national minimum-wage statute.

Then as now, Uncle Sam – despite all his blah, blah, blah about ‘justice’ and being on the side of ‘working families’ – kept the wages of higher-paid Americans artificially high by keeping the wages of lower-paid Americans artificially low.

Sincerely,
Donald J. Boudreaux

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{ 48 comments }

indianajim May 7, 2011 at 9:04 am

Great letter Don; shared it on Facebook.

Scott G May 7, 2011 at 9:23 am

Make that twice shared on Facebook.

muirgeo May 7, 2011 at 10:14 am

Once again the graph that explains everything;

http://www.irle.berkeley.edu/events/spring08/feller/productivity_wages_graph.gif

Here it is… this time showing that allowing production and capital to arbitrage labor causes stagnant wages.. ie doesn’t raise anyone’s wage except those born to privilege…. those on the very very top… and eventually you get the demand stagnant economy you see all around where wage stagnation does become less significant because now having a job at all is what matters…. setting the cycle for more wage reduction…again except for the CEO’s who’s wages are once again above what they were prior to this free market depression.

Methinks1776 May 7, 2011 at 10:34 am

Awesome! I’ve been looking for a graph that explains everything.

muirgeo May 7, 2011 at 12:35 pm

No prob…. my pleasure.

Methinks1776 May 7, 2011 at 12:43 pm

That’s obvious.

Krishnan May 7, 2011 at 9:14 pm

Including global warming, it also proves that Ehrlich was right – and that Malthus was right – and that Krugman is a genius and that Milton Friedman was wrong about everything – and … (add your own)

Answer to everything – right there.

John V May 7, 2011 at 10:51 am

simpleton

Emil May 7, 2011 at 11:13 am

Of course, as we all know wages and purchasing power are a lot lower in free market capitalist countries than in countries without free markets and capitalism… I mean there are endless examples: Cuba, North Korea, Vietnam, the DDR, Romania, Soviet…

muirgeo May 7, 2011 at 12:43 pm

Actually I am comparing apples to apples.

I am comparing well regulated mixed economic markets to
less well
regulated economic markets that are pushed towards the mythical free market. In the real world the latter always perform much less efficiently.

Your desire to compare everything other to communism is more a matter a kin to a cat being afraid of it’s shadow. You’re not interested
in real discussion of practical matters.’That sort of thing scares
people like you.

Emil May 7, 2011 at 1:08 pm

Actually you were comparing productivity and wages over time and showed that they both rise and not one type of market with another one

You also seem to be, by definition, equating “well regulated” with “more regulated”

magilson May 7, 2011 at 12:26 pm

The strongest growth in compensation has not come in the form of wages but instead in the form of fringe benefits which were not included.

Similarly, this measures productivity of industry and not necessarily the worker. When I design and install a new machine or figure out a way to make it more productive that increase in efficiency had nothing to do with the worker. And yet you illogically assume that worker should be “worth more” when the opposite is true. Now I make more widgets and likely can do so with even less skilled labor.

Dan May 7, 2011 at 12:59 pm

But, now, you have a job making the machines or maintaining or selling your knew design, and you will be paid more for your innovation and expertise in the design.

magilson May 9, 2011 at 12:31 pm

I’m not talking about my wage. I do, in fact, get paid more for these innovations and increases in productivity. What muirgeo continues to challenge others for without actually addressing himself is that plain fact that while more and more widgets are cranked out of American factories every day it has nothing to do with more productive machine operating employees and instead everything to do with more productive machines. And these machines and processes are more productive because of the result of innovation due to engineers or any number of other (actually) skilled workers.

But the idea that I should get some “share” of the efficiency I can improve on a machine is absurd. 1. I am not the owner. 2. I am not the only one who can do this kind of thing. My wage is the result of my employers available substitutes. Not how many more widgets I can cause a machine to make.

muirgeo’s confusion is insurmountable until he groks this basic concept.

Dan May 10, 2011 at 1:26 pm

‘should’ Key word
whether one ‘should’ receive compensation for their innovated efficiency is by agreement or not.

A contract between individuals

Don’t like the terms, don’t enter into contract. Employment is a contractual arrangement.

As minimum wages increases are advocated by politicians for purpose of fooling public into believing gains are made by workers ( prices rise and unemployment rises), firms find mechanization to be a more cost efficient substitute.

Sam Grove May 7, 2011 at 12:39 pm

prior to this free market depression.

Evidence of cluelessness. George reveals once again that he has no idea what “free market” means.

jjoxman May 7, 2011 at 12:53 pm

So how were wages measured? Is that in real terms? If so, how was the nominal wage deflated? Using CPI or PCE? Is that wage per worker or in total? Does that include benefits and other forms of compensation?

jjoxman May 7, 2011 at 12:53 pm

Meant as a reply to muirgeo.

Marcus May 7, 2011 at 1:00 pm

Sorry, I didn’t see your post before I posted mine below.

You’re right, the chart is meaningless.

jjoxman May 7, 2011 at 1:46 pm

No apologies necessary! The more voices of reason there are, the better.

muirgeo May 7, 2011 at 11:22 pm

Are you disputing that wages and productivity have diverged? The data is from the BLS. There is no dispute no matter how the data is measured.

If you want to get into a data debate, which I am sure you thought might be clever, provide any contrary evidence that wages have not diverged from productivity as measured by standard BLS methods.

Like an alcoholic you apparently need to take the first step and admit there is a problem. When some one has a need to deny obvious data the first question to ask is why?

But anyway , again I am not interested in a data debate as there is no legitimate debate. If you can even show the slightest hint there is one …sure let me know.

jjoxman May 8, 2011 at 8:44 am

No legitimate debate, huh? Maybe not for you. But anyone tempted by your graph should examine this careful work by Terry Fitzgerald. There’s even pictures to help you out! http://www.minneapolisfed.org/pubs/region/08-09/income.pdf

Specifically examine chart 1 and chart 2. Personal income? Yeah, that’s up by 80% from 1976 – 2006.

You probably, I’m sure, because you are so brilliant, realize that CPI is grossly overstated, and that by deflating using a less biased measure, like PCE, finds that real wage gains are much higher than those published by census.

And if you just want a quick picture, here’s the employment cost index for the 2000s for just manufacturing from the St. Louis Fed: http://research.stlouisfed.org/fred2/series/ECIMANCOM?cid=4

No debate huh? Spoken like a true scholar.

The Reticulator May 8, 2011 at 3:11 pm

Wages of what? Productivity of what?

maximus May 7, 2011 at 1:54 pm

Apparently he doesn’t know what “depression” means either. Last I checked the gdp figures have been positive for a couple of years. I suggest he learn what the word “stagflation” means.

brotio May 7, 2011 at 6:34 pm

I’m not sure that Yasafi can spell, “A” – let alone learn what it means.

muirgeo May 7, 2011 at 11:23 pm

Sure I can and more… A-hole

Dan May 8, 2011 at 4:26 am

Fallacy of composition

Seth May 7, 2011 at 12:52 pm

That’s quite a lot to conclude from a chart that plots two lines without any definition for how the points on those lines were calculated.

Marcus May 7, 2011 at 12:58 pm

Coming from you it’s not surprising to find that the chart provides no explanation of what has been graphed. It’s meaningless.

Going to the webpage the chart is from also reveals that there are no explanations for the graph. Only vacuous accusations.

Stone Glasgow May 7, 2011 at 2:44 pm

Amazing graph muirgeo. You forgot to include a line for the number of machines used in production, can you add that please?

muirgeo May 7, 2011 at 11:25 pm

If anyone has any evidence that this data is in dispute .. lets see it. Its not in dispute but rather then discuss the implications of the data you take the standard first tack… deny the data…. not very becoming but sure a easy way out for the lazy thinking.

Marcus May 7, 2011 at 11:40 pm

You’re the one who posted the chart. The onus is on you to support the claims you make. If you have something, then present it.

Dan May 8, 2011 at 4:24 am

Guilty until proven innocent

kyle8 May 8, 2011 at 8:24 am

I have a graph that I am not willing to share that shows that the level of ignoranceand foolishness displayed by individuals is in direct proportion to their rejection of free markets.

muirgeo May 8, 2011 at 9:07 am

Here is a post back in August of 2006 by Russ Roberts attempting to refute the findings discussed by David Leonhardt;

http://cafehayek.com/2006/08/catering_to_ign.html

In the discussion David Leonhardt’s reply to Russ is posted and he backs up the evidence available for wage stagnation seen in BLS numbers.

kyle8 May 8, 2011 at 10:45 pm

garbage in, garbage out.

muirgeo May 8, 2011 at 9:03 am
muirgeo May 8, 2011 at 9:17 am

Here is a recent journal recitation/ PDF available discusing the wage productivity gap and it’s effect on employment.

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1651717

John Galt May 7, 2011 at 10:29 am

blah blah, the intricate wealth building struggle between settlers and indians is distorted by the federal war on primitivism holocaust.
blah blah the utah territory is awash in mormon blood during the war on christians holocaust.
blah blah the south is looted during the war on property owners holocaust. blah blah the economy is destroyed during the libationers promiscuitous holocaust.
blah blah the greatest generation and all future wealth is sacrificed to the european collective idols during the holocaust to end all holocausts.

Dan May 7, 2011 at 1:11 pm

Aside from the obvious loss of positive economic impact to S.C, the purpose of Obama admin. Support for NLRB to side with Unions is political. Filth! It is none of the Feds business if a business sets up shop in a right to work state……. Can you say ‘authoritarian ‘ ?

jorod May 7, 2011 at 1:51 pm

Quote of the day…”What sickens me about left-wing people, especially the intellectuals, is their utter ignorance of the way things actually happen. I was always struck by this when I was in Burma and used to read anti-imperialist stuff. ” George Orwell

See article: http://www.nybooks.com/articles/archives/2011/may/26/intimate-orwell/?pagination=false

Sam Grove May 7, 2011 at 3:11 pm

From the same: In the end, Orwell seems to have essentially reverted to his original position of “Tory Anarchist.” In a letter to Malcolm Muggeridge, there is a statement that seems to me of fundamental importance: “The real division is not between conservatives and revolutionaries but between authoritarians and libertarians.”

Marcus May 7, 2011 at 3:18 pm

Which is exactly right. When you read murigeo’s post you can see the rage of an authoritarian, outraged because someone, somewhere is doing something he doesn’t like and by golly he’s going to put a stop to it no matter how many people he crushes along the way.

The most despicable part is how he uses the plight of the poor to justify it.

Dan May 7, 2011 at 10:36 pm

The ends justify the means……… The utopian ideal of an and to poverty, hunger, all blue collar crime, yadda, yadda, etc.,….. Justifies authoritarianism.

kyle8 May 8, 2011 at 8:28 am

The problem is that Muirego and Mao are just wannabees. But our nation mistakenly put a silly left wing academic with a huge authoritarian streak into the highest office of the land.

Dan May 7, 2011 at 10:37 pm

‘END’ to poverty………

Ameican hero May 8, 2011 at 11:17 pm

Regarding that disputed graph. I think the mistake in the data is that it’s measuring household income. And at about the time of this so called “divergence” the number of persons per household started to drop as a result of factors that are unclear (and not relevant to the discussion).

Now, when you have fewer persons in a household, you have lower household income. (4 workers in a household will tend to make more than 2 workers in a household – if you only measure household income, the graph would show “income dropping” or “income remaining stagnant!” )

The other interpretation is that somehow the laws of supply and demand were repealed or for some mysterious reason stopped working, after thousands of years, in 1980. As a result of course of Ronald Reagan. Under Reagan, employers no longer had to compete for labor, they could simply decide not to pay workers as much. There was no more competition from other employers who would have, under any normal economy, hire away any worker with productivity so much higher than their cost (wage). Which is of course, absurd.

N. Joseph Potts May 10, 2011 at 1:08 pm

This is the SECOND time Dr. Boudreaux has caused the scales to drop from my eyes (yes, I’m counting them), this time with the vital assistance of Burton Folsom.

The first time, he revealed to me that Prohibition was repealed by Congress when the income tax stopped (during the Depression) yielding sufficient revenues for the government’s “needs,” so alcohol was made taxable instead of illegal.

Now, through the link to Folsom’s article, he reveals that the minimum wage arose from the continuing colonization of the South by the victorious North, still reaping the spoils of its bloody victory some 73 years on, at that point.

That makes Two. Please keep it up, Dr. Boudreaux.

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