Why are wages high in some cities?

See Brookings' compilation of Census data about median wages in 2009:

 

Why are companies willing to pay more for workers in these towns?  Are they just being nice?  Could they make more money by moving to where wages are lower?

Agglomeration Economies of Iphone

NYT

In 2007, a little over a month before the iPhone was scheduled to appear in stores, Mr. Jobs beckoned a handful of lieutenants into an office. ...Mr. Jobs angrily held up his iPhone, angling it so everyone could see the dozens of tiny scratches marring its plastic screen... People will carry this phone in their pocket, he said. People also carry their keys in their pocket. “I won’t sell a product that gets scratched,” he said tensely. The only solution was using unscratchable glass instead. “I want a glass screen, and I want it perfect in six weeks.”

¶ After one executive left that meeting, he booked a flight to Shenzhen, China. If Mr. Jobs wanted perfect, there was nowhere else to go.

¶ ...all iPhones contain hundreds of parts, an estimated 90 percent of which are manufactured abroad. Advanced semiconductors have come from Germany and Taiwan, memory from Korea and Japan, display panels and circuitry from Korea and Taiwan, chipsets from Europe and rare metals from Africa and Asia. And all of it is put together in China.

¶ In its early days, Apple usually didn’t look beyond its own backyard for manufacturing solutions. A few years after Apple began building the Macintosh in 1983, for instance, Mr. Jobs bragged that it was “a machine that is made in America.” In 1990, while Mr. Jobs was running NeXT, which was eventually bought by Apple, the executive told a reporter that “I’m as proud of the factory as I am of the computer.” As late as 2002, top Apple executives occasionally drove two hours northeast of their headquarters to visit the company’s iMac plant in Elk Grove, Calif.

¶ But by 2004, Apple had largely turned to foreign manufacturing. Guiding that decision was Apple’s operations expert, Timothy D. Cook, who replaced Mr. Jobs as chief executive... Most other American electronics companies had already gone abroad, and Apple, which at the time was struggling, felt it had to grasp every advantage.

¶ In part, Asia was attractive because the semiskilled workers there were cheaper. But that wasn’t driving Apple. For technology companies, the cost of labor is minimal compared with the expense of buying parts and managing supply chains that bring together components and services from hundreds of companies.

¶ For Mr. Cook, the focus on Asia “came down to two things,” said one former ...Apple executive. Factories in Asia “can scale up and down faster” and “Asian supply chains have surpassed what’s in the U.S.” The result is that “we can’t compete at this point,” the executive said.

¶ The impact of such advantages became obvious as soon as Mr. Jobs demanded glass screens in 2007.

¶ For years, cellphone makers had avoided using glass because it required precision in cutting and grinding that was extremely difficult to achieve. Apple had already selected an American company, Corning Inc., to manufacture large panes of strengthened glass. But figuring out how to cut those panes into millions of iPhone screens required finding an empty cutting plant, ...and an army of midlevel engineers. It would cost a fortune simply to prepare.

¶ Then a bid for the work arrived from a Chinese factory.

¶ When an Apple team visited, the Chinese plant’s owners were already constructing a new wing. “This is in case you give us the contract,” the manager said... The Chinese government had agreed to underwrite costs for numerous industries, and those subsidies had trickled down to the glass-cutting factory. It had a warehouse filled with glass samples available to Apple, free of charge. The owners made engineers available at almost no cost. They had built on-site dormitories so employees would be available 24 hours a day.

¶ The Chinese plant got the job.

¶ “The entire supply chain is in China now,” said another former high-ranking Apple executive. “You need a thousand rubber gaskets? That’s the factory next door. You need a million screws? That factory is a block away. You need that screw made a little bit different? It will take three hours.”

¶ In Foxconn City

¶ An eight-hour drive from that glass factory is a complex, known informally as Foxconn City, where the iPhone is assembled. To Apple executives, Foxconn City was further evidence that China ...outpaced their American counterparts.

¶ That’s because nothing like Foxconn City exists in the United States.

¶ The facility has 230,000 employees, many working six days a week, often spending up to 12 hours a day at the plant. Over a quarter of Foxconn’s work force lives in company barracks and many workers earn less than $17 a day. ...

¶ “They could hire 3,000 people overnight,” said Jennifer Rigoni, who was Apple’s worldwide supply demand manager until 2010, but declined to discuss specifics of her work. “What U.S. plant can find 3,000 people overnight and convince them to live in dorms?”

¶ In mid-2007, after a month of experimentation, Apple’s engineers finally perfected a method for cutting strengthened glass so it could be used in the iPhone’s screen. The first truckloads of cut glass arrived at Foxconn City in the dead of night... That’s when managers woke thousands of workers, who crawled into their uniforms — white and black shirts for men, red for women — and quickly lined up to assemble, by hand, the phones. Within three months, Apple had sold one million iPhones. ...

Manufacturing glass for the iPhone revived a Corning factory in Kentucky, and today, much of the glass in iPhones is still made there. After the iPhone ...Corning received a flood of orders from other companies hoping to imitate Apple’s designs... and it has hired or continued employing about 1,000 Americans to support the emerging market.

¶ But as that market has expanded, the bulk of Corning’s strengthened glass manufacturing has occurred at plants in Japan and Taiwan.

¶ “Our customers are in Taiwan, Korea, Japan and China,” said James B. Flaws, Corning’s vice chairman... “We could make the glass here, and then ship it by boat, but that takes 35 days. Or, we could ship it by air, but that’s 10 times as expensive. So we build our glass factories next door to assembly factories, and those are overseas.”

Globalization and Violence

Stephen Pinker shows that violence has declined over time. 
What are the three reasons he gives?  How does each one relate to globalization?  

• "About 15% of people in prestate eras died violently, compared with about 3% of the citizens of the earliest states."  Only about 1.28% of the world died due to violent acts in 2002 which is less than the amount of self-inflicted violence (suicide) which killed 1.53%. 

Also, here is an optional clip of Stephen Pinker @ FP magazine:

the quantitative study of history provides some pleasant surprises. Abominable customs such as human sacrifice, chattel slavery, and torture-executions for victimless crimes have been abolished. Homicide rates have plunged since the Middle Ages, and rates of battle death in armed conflict are at an all-time low. ...many destructive wars have been fought over nebulous claims to national preeminence, including World War I. At the other end of the scale, the single largest motive for homicide on police blotters are "altercation of relatively trivial origin; insult, curse, jostling, etc."

...Perhaps the most extraordinary popular delusion about violence of the past quarter-century is that it is caused by low self-esteem. Self-esteem can be measured, and surveys show that it is the psychopaths, street toughs, bullies, abusive husbands, serial rapists, and hate-crime perpetrators who [have extremely high self-esteem. ...violent people are narcissistic: They think well of themselves ...out of a congenital sense of entitlement. When reality intrudes... they treat the bad news as a personal affront, and its bearer, who is endangering their fragile reputation, as a malicious slanderer.

Violence-prone personality traits are even more consequential when they infect political rulers, because their hang-ups can affect hundreds of millions of people rather than just the unlucky few... Unimaginable amounts of suffering have been caused by [narcissistic] tyrants... The ...American Psychiatric Association defines narcissistic personality disorder as "a pervasive pattern of grandiosity, need for admiration, and a lack of empathy." The trio of symptoms at narcissism's core... fits tyrants to a T. It is most obvious in their vainglorious monuments, hagiographic iconography, and obsequious mass rallies. And... narcissistic rulers leave their mark in more than statuary; they... authorize vast outlays of... rapacious conquest, pharaonic construction projects, or utopian master plans.

Among the pacifying features of democracies is that their leadership-selection procedure penalizes an utter lack of empathy, and their checks and balances limit the damage that a grandiose leader can do.

Outsourcing to Robots

Farhad Manjoo asks, "Will Robots Steal Your Job?" and says, "You're highly educated. You make a lot of money. You should still be afraid."  This is a longstanding fear that increasing productivity will impoverish us all.  So far in the past century it has increased leisure time and raised living standards.  It is ironic that people are afraid that productivity growth could create massive unemployment AND that the growing future population of unemployed senior citizens is another future trend to be afraid of.  However, the fear of productivity is due to a serious potential problem: inequality.  The reason unemployment is a huge social problem is due to the inequality it creates and productivity growth does raise an important question:  Who will get the gains of the productivity increases?  Sometimes the gains of technological improvement go to labor (like in the past century), sometimes they go to the landowners (like agricultural improvements in past centuries), and sometimes they go to the owners of capital (like some kinds of industrialization which replaced skilled occupations with largely unskilled workers).  In the future, there is more potential for greater consumption to run up against inelastic natural resource constraints whether they are water, fossil fuels, or some mineral.  Then the gains could mainly go to the owners of scarce resources rather than to labor.  Intellectual property could create artificial scarcity which increases inequality. 
Productivity growth need not increase inequality.  The 1940s-1960s featured high productivity growth and high equality.  The 1970s-2000s featured lower productivity growth and higher inequality again. 

Impact of Trade W/ China On The US

“The China Syndrome: Local Labor Market Effects of Import Competition in the United States” (PDF) by David H. Autor, David Dorn, and Gordon H. Hanson. The Wall Street Journal
wrote about this and were widely interpreted as saying that trade with China has been bad for the US, but they didn't actually say that.  This is a case where a journalist wrote a story that is easy to misinterpret.  This is how they begin the story:

For years, economists have told Americans worried that cheap Chinese imports will kill jobs that the benefits of trade with China far outweigh its costs.
New research suggests the damage to the U.S. has been deeper than these economists have supposed. The study, conducted by a team of three economists, doesn't challenge the traditional view that trade is ultimately good for the economy. Workers who lose jobs do eventually find new work or retire, while the benefits from trade, such as lower prices, remain. 

I think that the WSJ intentionally made the research look provocative to make the story more interesting and it worked.  Yglesias:

I have to say that looking at the paper I don’t totally understand the fanfare the Wall Street Journal gave it. Here’s the abstract:

We analyze the effect of rising Chinese import competition between 1990 and 2007 on local U.S. labor markets, exploiting cross-market variation in import exposure stemming from initial differences in industry specialization while instrumenting for imports using changes in Chinese imports by industry to other high-income countries. Rising exposure increases unemployment, lowers labor force participation, and reduces wages in local labor markets. Conservatively, it explains one-quarter of the contemporaneous aggregate decline in U.S. manufacturing employment. Transfer benefits payments for unemployment, disability, retirement, and healthcare also rise sharply in exposed labor markets. The deadweight loss of financing these transfers is one to two-thirds as large as U.S. gains from trade with China.

This is interesting and important work, but it doesn’t overturn David Ricardo or whatever’s in the introductory textbooks. It says that imports from China create a broad-based consumer surplus and concentrated losses for producers of import-competing goods. The interesting empirical finding here is that the scale of the impact is really large. Some countries (Iceland, Israel, Denmark) are small so it’s always been obvious that international trade is very important to them but the traditional analysis of postwar America was that international trade just wasn’t that big a deal for the United States. But China is a huge country and it’s growing rapidly, so the scale of the trade impacts is much larger than we’ve traditionally seen.

Peak Oil

Early Warning:

Following up on yesterday's post of global oil production per capita, the above graph shows oil consumption per capita for an illustrative selection of countries around the world (along with the world line in black for comparison).  You can see that the developed countries all had peak consumption in the 1970s, fell in the early 1980s, then were flat for a while and began declining again.  In Europe, that second decline began in the mid 90s and has been gradual.  In the US it started in 2005 and has been rather abrupt.

...To see the developing countries more clearly here's the same data with the y-axis blown up:

India, China, and Brazil have all been growing their per-capita consumption rapidly in recent years, unlike the West.  China and India still have considerable distance to go before reaching the world average, however.

Broadly speaking then, the developed countries have been cutting per-capita oil consumption and will be doing so further, in order to make room for consumption in the more rapidly growing economies of the developing world.  There are two ways for these cuts in consumption to happen: use oil more efficiently in the economy, or have less economy.  Since 2005, in the US, we are mainly taking the second approach.

 Econobrowser:

 Although it is true that global production did not fall between 2005 and 2010, it is also accurate to observe that it did not grow very much, rising only 2.2 million barrels/day (which represents 2.6% of 2005 levels) over these 5 years. Over these same 5 years, China increased its consumption by 2.5 mb/d. Thus, although the world did produce more, everybody in the world outside of China had to make do with less.

Total global oil production, in millions of barrels per day, annual 2002-2010 (data source: EIA).

...Suppose I was trying to convince you that you are a mortal being, and your counterargument was, "but that's what you said in 2005, and I didn't die then! You said it again in 2007 and 2009, and each time you were wrong. Why should I believe you this time?"
Perhaps acknowledging one's own mortality is a similar proposition to embracing the possibility that global oil production need not continue to rise forever.
In any case, I was not among those who claimed that the peak would arrive by Thanksgiving 2005, nor 2007, nor 2011. But I am among those who did claim, and still believe, that the slow rate of increase in annual oil production over the last 5 years has caused significant economic problems for countries like the United States.
Moreover, if having been wrong in the past were a valid reason to disregard everything someone says, it might be wise to ponder these words that Daniel Yergin wrote in 2005:

There will be a large, unprecedented buildup of oil supply in the next few years. Between 2004 and 2010, capacity to produce oil (not actual production) could grow by 16 million barrels a day -- from 85 million barrels per day to 101 million barrels a day -- a 20 percent increase. Such growth over the next few years would relieve the current pressure on supply and demand.

Dissecting what went wrong with that prediction is a topic for another occasion. I believe it was based on a careful, thoughtful analysis, and provides an interesting case study in some of the challenges facing anybody who tries to make these kinds of predictions. But I do feel that the meme of "don't listen to the peak oil nuts, because they've always been wrong before" should have gotten a bit tiresome at this point. ...I submit that meeting the growing global demand for crude oil over the last five years has posed significant challenges for the world economy. And those who worry that the next 5-10 years might be like the last should not be dismissed as crackpots.

Industrial Policy Is About Picking Industries, Not Companies

Prestowitz: 
S+B: Starting with his role as an advisor to the secretary of commerce in the Reagan administration in the 1980s, and progressing to his current position as founder and president of the Economic Strategy Institute in Washington, D.C., Clyde Prestowitz has been a consistent voice on the importance of manufacturing in economic competitiveness....

PRESTOWITZ: ...There are two kinds of global companies. In the United States, the purpose of the corporation is primarily to provide optimal returns to shareholders. This leads to a focus on optimizing short-term results. In continental Europe and most of Asia, the state charters the corporation and gives it a lot of specific benefits; in exchange, the corporation provides benefits to society. This leads naturally to embracing a coherent industrial policy....

S+B: What do you mean by a coherent industrial policy?
PRESTOWITZ: There’s a lot of misunderstanding about this. It’s associated with pre–World War II Britain and France, whose governments supported particular companies as national champions. People assume it means having governments pick winners and losers.
Look instead at countries like Singapore, Sweden, Taiwan, Germany, Korea, Switzerland, Finland, and China. They’re all very different; some are democratic, others are authoritarian. The Finns and Swedes have strong labor unions, whereas unions in Taiwan and Singapore are weak. But all these countries are economically successful for the same reasons. First, their governments focus on being competitive by promoting selected high-value-added industries, with a long planning horizon. Second, they have a high level of coordination among the government, labor unions, and business management, in investment decisions, wages, and inflation rates. They don’t pick winning companies; instead, they build a consensus on what each of them has to do to contribute [to building a vibrant industry]. Compared to other countries that have taken a more laissez-faire approach, their performance is far superior.