Susan Helper, Timothy Krueger, and Howard Wial forcefully make the case for manufacturing in a Brookings paper (PDF) where one subject of interest is the seeming existence of a wage premium in the manufacturing sector. At different skill levels, manufacturerers pay more:
What I wonder when people point this out is what they think follows from this. Here's one though. In India, a very large segment of the workforce is doing extremely low wage work in the agricultural sector. And agricultural productivity is limited by the availability of land. So insofar as you're able to subsidize the creation of manufacturing work, not only do the people who get the manufacturing jobs earn higher wages—the residual agricultural population earns higher wages too. This off the farm aspect to industrialization has historically been a huge driver of prosperity and I think it's crucially important for political leaders in developing countries to think about it.
the OECD released their quarterly “Unit Labour Costs and Related Indicators”. ...Costs were generally rising in the second quarter, but were up sharply in Norway and Australia. Why does this matter?The rise in unit labor costs indicates the level of inflation in America.
Unit labour costs are the best estimate of staffing costs faced by firms. They represent the amount of money needed to pay your staff to make one unit of output, one widget. This is a function of two elements, the cost of the staff—their hourly wages—and the speed at which they make widgets, their productivity. Expressed in growth rates unit labour costs are roughly equal to growth in wages minus the growth in labour productivity, per widget. In America, in the second quarter, unit labour costs increased by 0.8%, this consisted of a 1.0% increase in wages and a 0.2% increase in labour productivity.
Normally, and especially now, this is not a concern; a little bit of inflation is better than a little bit of deflation. [Most countries] display similar trends.Menzie Chinn:
Contrast that with the situation in Norway and Australia, where rising wages and falling labour productivity are generating unit labour cost increases above 5%. This is indicative of a tight labour market; firms are forced to increase wages to hold onto workers and must occasionally employ lower skilled workers than they'd prefer, leading to decreases in average labour productivity.
So what's up with Norway and Australia? Both economies are heavily dependent on natural resources. Unlike manufacturing jobs, natural resource industries aren't susceptible to offshoring when labour costs soar. You have to mine coal where the coal is.
The interesting trend since 2001 has been the rise in [price markup over unit labor cost.]
Source: Economic Report of the President, 2012.From this graph, one would be hard pressed to find American business in terrible shape. Productivity has increased, labor compensation growth has been modest, so that it’s obvious where profits have come from. This also means (to me) that there is substantial space for rising wages to be absorbed without a commensurate wage-price spiral.
As I noted in this recent post, rapid productivity growth combined with slow compensation growth has improved American competitiveness. Nominal dollar depreciation over that period emphasized that improvement.
If consumers' sentiments in favor of Chinese workers does not last, will improvements in Chinese working conditions be temporary too?Plants depend on workers’ being at assembly lines six or seven days a week, often for as long as 14 hours a day. ...For that system to genuinely change, Foxconn, its competitors and their clients — which include Apple, Hewlett-Packard, Dell and the world’s other large electronics firms — must convince consumers in America and elsewhere that improving factories to benefit workers is worth the higher prices of goods.“This is the way capitalism is supposed to work,” said David Autor, an economist at the Massachusetts Institute of Technology. “As nations develop, wages rise and life theoretically gets better for everyone. But in China, for that change to be permanent, consumers have to be willing to bear the consequences. When people read about bad Chinese factories in the paper, they might have a moment of outrage. But then they go to Amazon and are as ruthless as ever about paying the lowest prices.”
Here's a nice point from Julian Sanchez and Cory Doctorow: Most of the thinking on Capitol Hill about "piracy" utterly fails to wrestle with the reality that in the future copying is destined to become radically easier than it is today.
Consider that 30 years ago, Seagate introduced the world to the SG-506 with 5 megabytes of storage for $1,500. Today they sell a 4 terabyte drive for less than $450. Where you used to get 0.003333 megabytes per dollar, you know get 9,320 megabytes per dollar in nominal terms. Thirty years from, random individuals will easily and cheaply be able to store all the songs you could possibly imagine. Shutting down large-scale data centers isn't going to accomplish anything, you'd need very intrusive monitoring of everyone's activities all the time to prevent copying from running amok. It'd be intrusiveness on the order of what it would take today to stop people from lending books to friends. Either content production will survive a world of nearly ubiquitous file-copying, or else some other kind of system like Dean Baker's arts vouchers will have to be devised.
What if I told you that we could obtain half the reduction in carbon emissions needed to stave off climate disaster not with new government interventions in the economy but simply by removing existing interventions?
Fatih Birol, chief economist of the International Energy Agency is telling you exactly that. In data released this month as part of the IEA’s latest World Energy Outlook report, he shows that in 2010 the world spent $409 billion on subsidizing the production and consumption of fossil fuels, dwarfing the word’s $66 billion or so of subsidies for renewable energy. Phasing fossil fuel subsidies out would be sufficient to accomplish about half the reduction in greenhouse gas emissions needed to meet the goal of preventing average world temperatures from rising more than 2 degrees Celsius.You don’t hear as much about this as you should largely because the biggest offenders are far from our shores. Still, the scale and scope of the issue is worth dwelling on if only because these subsidies are so wrongheaded.Far and away the biggest problem seems to be that misguided sense that countries that are large producers of certain kinds of fuels ought to subsidize domestic consumption of the fuel in question. Thus Saudi Arabia spends more than $30 billion a year on gas consumption subsidies while Russia spends $17 billion on natural gas subsidies. Iran, which produces both, subsidizes both, spending $66 billion in total plus an additional $14.4 billion on electricity consumption subsidies. Large-population developing countries such as China, India, and Indonesia are also important players in the subsidy game. In no case do these subsidies make sense.
For starters, the mere fact that your country contains a lot of oil offers no special reason to subsidize gasoline consumption. For one thing, gasoline isn’t oil. Like other usable fuels, it needs to be refined from crude. Iran is actually a net importer of refined petroleum products, and the United States has recently become a net exporter of them, even as the situation for crude oil is the reverse. More broadly, the opportunity cost of using a domestically produced barrel of oil is identical to the financial cost of buying a barrel on international markets. In other words, if the Japanese government wants to offer subsidized oil to its citizens, it needs to go buy the oil first from Saudi Arabia. By the same token, if the Saudi government wants to offer subsidized oil to its citizens, it needs to sell less to Japan. The budgetary impact is identical in either case and the merits of the policy have nothing to do with how much oil a country has.
And what are the merits? Not much. Consumption subsidies are typically justified as beneficial to the poor. But while it’s certainly true that in rich countries utility bills and transportation fuel costs disproportionately burden the poor, it’s not clear that this is true in the developing world. Here in the United States, only rich people go to fancy restaurants, but everyone needs to run home appliances, which is why higher energy costs hit the poor hardest. In India, however, more than a third of the population doesn’t have electricity, and most people don’t have cars. China’s not as poor as India, but the same logic applies: The people who truly need help are the people who can’t afford to take advantage of the subsidies. The IEA calculates that less than 10 percent of global fossil fuel subsidies benefit the poorest 20 percent. These subsidies would be much better spent on a mix of cash grants to the poor, lower taxes to spur growth, and investments in infrastructure and education.But even a direct fuel subsidy for the poor is a pretty bad way to help people. America doesn’t go in for lavish spending on fuel consumption subsidies, but we do have something called the Low-Income Home Energy Assistance Program, which offers targeted subsidies to help poor families in cold-weather states to keep their families warm in the winter. This is hardly the worst idea in the world, but you’d do more for the families and the environment if you just gave them cash. Some of that cash might go to pay the heating bill, but some might go to the purchase of sweaters or better insulation, ecologically friendlier solutions that will probably help households more over the long run.That these kinds of subsidies are misguided counts as conventional wisdom in the economics world, but it’s not clear that even economists have recognized the sheer scale of the impact. If roughly half of what needs to be done can be achieved simply by eliminating economic distortions—economic distortions that would be unwise even if there were no concern about pollution—then the whole framework of a trade-off between prosperity and sustainability is largely misguided. The outlook for greener, freer markets gets even brighter when you consider that consumption subsidies aren’t the only dirty interventions out there. The U.S. government offers generous tax subsidies for the production of oil and natural gas (each year, President Obama proposes to scrap them, and each year Congress declines), and the European Union does the same for coal. Local governments nearly everywhere require the construction of more parking spaces and lower-density buildings than a free market would provide, encouraging excessive driving and energy-intensive large detached homes.At the end of the day, pure laissez faire can never meet the world’s environmental challenges. If you want to reduce greenhouse gas emissions, you need to cap them and then you need to reduce the cap. But a surprisingly large step toward that target can occur by simply allowing the market to do its work by removing the subsidies that encourage lavish and inefficient consumption of fossil fuels.
