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Low Productivity is a Handicap

Here’s a letter to Cafe Hayek reader Tony Dye:

Mr. Dye:

Thanks for your e-mail.

You aren’t alone in believing that (as you put it) “It’s unfair to make Americans compete against cheap Chinese labor.” With respect, however, you are mistaken. Wages in China are lower than in America because worker productivity in China is lower. Therefore, low Chinese wages do not give workers there an unfair advantage; instead, low Chinese wages reflect Chinese workers’ unfortunate disadvantages.

For high-wage Americans to fear competition with low-wage foreigners makes no more sense than for high-wage Americans to fear competition with low-wage workers who are handicapped by physical or mental disabilities. The handicaps suffered by these unfortunate latter workers prevent them from producing as much value per hour as is produced by healthy workers. Wages earned by handicapped workers are thus lower. But surely you don’t believe that these workers thereby enjoy an unfair advantage over healthy workers, or that it’s unfair to healthy workers to allow “cheap” handicapped workers to compete in the market.

Ordinary workers in China are also handicapped relative to their American counterparts – handicapped not by physical or mental disabilities but, instead, by having less capital to work with, by having less infrastructure, by having weaker market-supporting institutions, and by a state more arbitrary and oppressive than is government in the U.S. While China is improving on all fronts but this last – and while on this last front the U.S. government is getting worse – workers in China, relative to workers here, remain disadvantaged by real economic handicaps – handicaps that keep their wages lower than are the wages that we Americans earn because of our great advantages.

Donald J. Boudreaux
Professor of Economics
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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