- Cafe Hayek - https://cafehayek.com -

Bonus Quotation of the Day…

Tweet [1]

… is from page 138 of Leland Yeager’s and David Tuerck’s marvelous 1966 volume, Trade Policy and the Price System [2]:

The very fact that the high cost of labor burdens an import-competing industry suggests that its workers have alternative job opportunities.

When the likes of Bernie Sanders or Donald Trump or some other equally economically ignorant populist complains about low-wage foreign workers posing a threat to higher-wage American workers, you need not struggle to review the comparative complexities of the principle of comparative advantage [3] in order to expose the error of the complaint.  You merely need to ask the populist to explain why American-workers’ wages are, on average, higher than those of the workers who the populist finds so threatening to Americans.  The mere asking of this question goes a substantial distance toward exposing one of the chief economic fallacies that fuels the fear of imports produced by low-wage foreign workers.

Whether or not the populist can be made to glimpse it (or, being hopeful, to grasp it), the reality is that American-workers’ high wages are the result of a combination of high worker productivity in America and competitive labor markets in America.  Competition causes wages to reflect workers’ high productivity.  Put differently, save in those relatively rare cases where labor unions or other privileged groups stymie competition and artificially drive up wages, American-workers’ high wages reflect the fact that each American worker has attractive employment alternatives.

The existence of such alternatives is desirable, not undesirable.  And while a second-best alternative is not as good as the alternative that is actually chosen, the existence of the second-best alternative is essential to making the first-best alternative a reality: without the second-best alternative, the worker’s current employer need not have offered an employment-contract deal as attractive as the one it offered given the threat that the worker could – and might – choose the alternative that is revealed to be second-best.

So, high-wage American workers have lots of good options compared to lower-wage workers in poorer countries.  It is ridiculous, therefore, to regard low-wage foreign workers as having some sort of enviable advantage over their higher-wage American counterparts.

Comments