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“High-Wages” Means “High-Productivity”

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Here’s a letter to a commenter at AIER, one Mr. Robert Young:

Mr. Young:

Commenting on Jeffrey Tucker’s essay “Tariffs Have Not Been Paid by China; They Have Not Raised Revenue on Net [2],” you suggest that the level of wages in high-wage countries will fall if residents of those countries can trade freely with producers in low-wage countries.

You’re mistaken.

Wages in the U.S. and other high-wage countries are higher than are wages in low-wage countries not by chance. These wages are higher because workers in high-wage countries are more productive than are workers in low-wage countries. That is, compared to workers in low-wage countries, workers in high-wage countries on average produce more value per hour for their employers.

High-wage workers are more productive, in turn, because they are highly skilled and work with that which is not available to workers in low-wage countries – namely, lots of machines and other capital, as well as relatively advanced and abundant infrastructure. Also, workers in high-wage countries operate in societies with high trust. High trust – by reducing the costs of monitoring, thievery, and corruption – further increases the value of workers’ outputs.

In short, “high-wage workers” is simply another term for “high-productivity workers.” Because freer trade of high-wage countries with low-wage countries does nothing to reduce the productivity of workers in high-wage countries – quite the contrary, such trade increases that productivity – workers’ wages in high-wage countries will only generally rise as those countries trade more freely with other countries, including with low-wage countries.

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