“Workers are paid $20 an hour in the united states but only $4 in Taiwan. Of course we can’t compete. We need to protect our jobs from cheap foreign labor.” What are some possible problems with this statement?
These are type of people who conclude that foreign exporters can flood the market with lower priced goods and at the same time reduce domestic jobs. They are also protectionists who use this disagreement to evaluate foreign hourly wage rates to those paid in their home country. The first problem with this statement is that wage costs are neither all of the production costs nor all of the labor costs. Comparison just based on relative hourly wages is misleading. Second, the productivity per worker is frequently much greater in developed countries because of more capital per worker, superior management, and advanced technology. As a result, the labor cost component for the goods being produced is lower even though wages are higher. Third, results from failure to consider the costs of the other factors of production. Where wage rates are low, the capital costs are usually high, and thus production costs may actually be higher in a low-wage nation. For those who oppose imports goods to save domestic jobs should remember that exports create jobs. For example $1 billion in American exports creates an average of 25,000 new jobs in the united States. If a nation imposes barriers on imports from a second country, that second country’s government may retaliate with greater import duties on exports from the first nation. The result could be a net loss of jobs rather than the gain that was anticipated.