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The High-Wage Fallacy

“In a prosperous country such as the United States, a fallacy that sounds very plausible is that American goods cannot compete with goods produced by low-wage workers in poorer countries, some of whom are paid a fraction of what American workers receive. But, plausible as this may sound, both history and economics refute it. Historically, high-wage countries have been exporting to low-wage countries for centuries. The Dutch Republic was a leader in international trade for nearly a century and a half—from the 1590s to the 1740s—while having some of the highest-paid workers in the world.{ 751} Britain was the world’s greatest exporter in the nineteenth century and its wage rates were much higher than the wage rates in many, if not most, of the countries to which it sold its goods.”

— Basic Economics by #ThomasSowell

https://a.co/cTq3Q31

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j 2y ago

“Economically, the key flaw in the high-wage argument is that it confuses wage rates with labor costs—and labor costs with total costs. Wage rates are measured per hour of work. Labor costs are measured per unit of output. Total costs include not only the cost of labor but also the cost of capital, raw materials, transportation, and other things needed to produce output and bring the finished product to market. When workers in a prosperous country receive wages twice as high as workers in a poorer country and produce three times the output per hour, then it is the high-wage country which has the lower labor costs per unit of output. That is, it is cheaper to get a given amount of work done in the more prosperous country simply because it takes less labor, even though individual workers are paid more for their time. The higher-paid workers may be more efficiently organized and managed, or have more or better machinery to work with, or work in companies or industries with greater economies of scale. Often transportation costs are lower in the more developed country, so that total costs of delivering the product to market are less.”

— Basic Economics by #ThomasSowell

https://a.co/gX5bSbj