Wednesday, August 10, 2016

Should Bill Gates Clean His Own Toilets?

By Don Boudreaux

A popular argument against free trade is the following: Workers in high-wage countries are impoverished if they trade freely with workers in low-wage countries.

If valid, this argument presents a legitimate economic reason for high-wage countries to avoid trading with poorer countries.

This argument, though, is bunk.

It rests on the mistaken assumption that wages are arbitrary. In fact, wages in America are higher than wages in Mexico because American workers are more productive than are Mexican workers. And American workers' higher productivity is the result of these workers having more capital to work with and to get their outputs to market — more and better tools; more and safer roads, bridges and docks; more and better education and job training; and more co-workers who are highly specialized (and, hence, who possess deeper knowledge of how to perform their tasks).

These advantages oblige employers to pay workers in America more than employers pay workers in Mexico. American firms that stubbornly refuses to pay their workers wages that reflect those workers' productivity eventually lose those workers to other employers who aren't so stubborn.

Here's a challenge: When you next hear a politician or pundit exclaim that “high-wage Americans can't compete with low-wage foreigners,” re-word the claim so that it becomes “high-productivity Americans can't compete with low-productivity foreigners.” The two statements, for all practical purposes, mean the same thing; they're just worded differently. Yet no one would for a moment take the re-worded version seriously.

Read the rest here.


  1. Wrong. An American bus driver is not more productive than a Mexican bus driver, or a Indian bus driver for that matter. The American bus driver is paid more only because he is in America.

    1. The productivity of a bus driver living in Mexico is zero when carrying passengers in America is considered as the product. The wages for service jobs are determined by supply and demand in the local markets; and the demand is determined by the productivity of the economy (not a single sector) within some proximity of this local market.

    2. The US effectively has open borders with Mexico. The only thing preventing bus driver pay in the US from lowering significantly are regulations preventing migrant bus drivers from working in the US.

      Therefore it is regulation that determines the pay for this sector, and most other sectors.