Labor Market in the Global Economy

12.4.2 Describe current economy and labor market … and the

impact of international competition.

12.4.4 Explain the effects of international mobility of capital

and labor on the U.S. economy.

What is the “global economy?”

• Throughout history, goods imported from other countries have been seen as exotic and expensive; only for the rich or special occasions. Until recently (last century).

• “New” communication and transportation technologies have created a network of trade such that it is often cheaper to buy goods shipped all the way from across the world.

• Unlike the past, people in every country regularly buy goods made in other countries.

How can importing be cheaper?

• The only extra costs for imported goods are shipping and tariffs (taxes).

• The cost of shipping has decreased drastically since the age of steel ships and airplanes began.

• Relatively small charge for transportation is often much lower than savings on other costs.

How is importing cheaper: natural advantages

• The simplest reason why one country might produce goods more cheaply than others is that is contains the necessary resources.

• For example, America can produce apple pie cheaper than most countries because apples grow so easily on our soil; some would have to import apples to bake pie!

• Alternatively, maybe the people who know how to make something only live in one place. It is therefore cheaper for that place to produce the good or service.

How Importing is cheaper: unnatural advantages

• Highly developed infrastructure

• High average human capital

• Stable political structure

• Government subsidies

How importing is cheaper: unnatural disadvantages

• Many countries have advantages in production costs due to– Minimum wage– Workplace safety rules– Environmental regulation– Corporate taxes– Heavy tariffs

Outsourcing

• The end result is that when a capitalist wants to sell a product, he doesn’t just set up where he wants to sell it.

• Rather, he looks around the world for the cheapest place to produce first and then pays a little extra to ship it wherever he wants to sell.

• When a business sends jobs outside of a country like this, it is called “outsourcing.”

Global Labor Competition

• Because the capitalist is free to move his money around the world, countries must compete for his business.

• Unfortunately, the cheapest way countries can compete is by removing regulations on conditions, payment, environmentalism, etc.

U.S. Production Factors

• The U.S. has very high levels of infrastructure, human capital, and natural resources. These factors make production in the U.S. more profitable.

• We also have a very high minimum wage ($7.25/hr), significant EPA restrictions, powerful labor unions, and medium taxes. This factors make production in the U.S. less profitable.

U.S. Labor Market

• As a result of this mix of factors, Americans are generally only hired for high-value jobs, particularly the type that don’t create pollution.

• This means mostly services and management.

• The exception is the highest value manufacturing jobs like cars, airplanes, complex machinery, etc.

Summary Questions

• What is the “global economy,” and what made it happen?

• Why is production of goods more profitable in some places than others?

• What types of jobs does the U.S. have, and why?