Cross-country wage comparisons

On Saturday, I listened to Orley Ashenfelter’s AEA presidential address about cross-country wage comparisons. For a few years, Ashenfelter has been collecting data on “McWages“, so as to “to measure wages for virtually identical jobs, producing identical products in firms with identical technology.” In making these comparisons, he deflates the McDonald’s wage by the price of a Big Mac, thereby calculating the real producer wage.

Yesterday, the Atlantic’s Richard Florida had a post titled “Which Countries Pay Blue Collar Workers the Most?” It featured this BLS table:

Country Pay for Time Worked Total Hourly Compensation
1. Norway NA $57.53
2. Switzerland $34.29 $53.20
3. Belgium $24.01 $50.70
4. Denmark $34.78 $45.48
5. Sweden $25.05 $43.81
6. Germany $25.80 $43.76
7. Finland $22.35 $42.30
8. Austria $21.67 $41.07
9. Netherlands $23.49 $40.92
10. Australia $28.55 $40.60
11. France $21.06 $40.55
12. Ireland $26.29 $36.30
13. Canada $24.23 $35.67
14. United States $23.22 $34.74
15. Italy $18.96 $33.41
16. Japan $18.32 $31.99
17. United Kingdom $21.16 $29.44
18. Spain $14.53 $26.60
19. Greece $13.01 $22.19
20. New Zealand $17.29 $20.57

What does this table mean? Florida writes:

A quick look at the table above suggests that the level of compensation provided to manufacturing workers reflects a nation’s overall level of economic, social, and human development. And that is indeed the case, according to a simple statistical analysis by my colleague Charlotta Mellander.

Manufacturing compensation is closely related to productivity (measured as economic output per capita), global economic competitiveness and overall human development as well as my own Global Creativity Index. This is all in line with basic economics. And manufacturing compensation and wages are higher in nations with higher levels of education and where greater shares of the workforce are employed in knowledge, professional and creative jobs. In other words, manufacturing compensation and wages rise as nations become more post-industrial. Higher manufacturing compensation is also related to lower levels of inequality and higher levels of happiness.

Manufacturing workers are paid the best in the most advanced nations, places that boast advanced safety nets, generous benefit systems and high productivity. Post-industrial economies might not have the most manufacturing jobs, but their workers are the best paid. Instead of adopting a low-road strategy of trying to reduce manufacturing costs and wages in order to compete with China or other emerging economies, the U.S. would be better off with a high-road one, promoting policies that improve innovation, skills and productivity.

I think that we learn a lot about cross-country wage comparisons by thinking about what this table does not mean.

Does this table rank countries by the welfare of their blue-collar workers? No. Welfare depends on real consumer wages, not nominal wages, so a welfare comparison would necessitate deflating these nominal wages by local prices. For example, Switzerland is a notoriously expensive place to live; its price level is about 1.5 times that of the US. Those interpreting the table as saying that a US-to-Switzerland migration would raise their wages by 50% would be disappointed when they discovered the accompanying 50% price increase. So this table isn’t about workers’ welfare.

Does this table rank countries by their manufacturing TFP? No, for many (potential) reasons. For example, worker quality may differ considerably across countries. Suppose that all these countries are producing the same goods using the same technology, but different countries’ workers embody different numbers of efficiency units of labor. You’ll then observe substantial wage variation even if the unit cost of labor and manufacturing TFP are identical across countries.

Does this table rank countries by their labor productivity in manufacturing? It would if you believe we’re in a world of factor price equalization so that differences in wage rates must reflect differences in workers’ labor productivity. But are these workers making the same product using the same technology? Are enough factors of production sufficiently mobile to put us in the FPE set? Can large trade costs support differences in unit costs? And so forth.

[By the way, manufacturing employees aren’t all “blue-collar workers”. There is cross-country variation in the white-collar-blue-collar ratio of manufacturing, which will move the average hourly compensation measure.]

The BLS measure “hourly compensation costs in manufacturing” is a straightforward number, but cross-country wage comparisons are not a straightforward economic concept. Richard Florida suggests that we understand something about it by looking at its correlates. I would suggest that teaching students what this table does not mean may convey even more economic lessons.

2012 AEA meetings

A few thousand economists will descend upon downtown Chicago this weekend for three days of job-market interviews, research presentations, and other forms of fun at the American Economic Association’s annual meetings. The preliminary program listing is online.

I’ll be attending; please do say hello if you spot me. It was a pleasure to meet a couple of Trade Diversion readers last year in Denver.

The AEA meetings are a massive affair; if you search the program, you’ll find 17 sessions on international trade (JEL code F1) occupying a mere nine time slots. You might also catch me at sessions on F3, F4, P5, or R1. But listing all those would make this post far too long. See you in Chicago!

  • Jan 06, 2012 10:15 am, Hyatt Regency, Regency D
    New Directions in Trade Policy (F1)
  • Jan 06, 2012 10:15 am, Hyatt Regency, Columbian
    Offshoring Theories and Evidence (F1)
  • Jan 06, 2012 10:15 am, Hyatt Regency, Regency D
    New Directions in Trade Policy (F1)
  • Jan 06, 2012 12:30 pm, Hyatt Regency, Stetson Suite FG
    International Trade and Finance (F1)
  • Jan 06, 2012 2:30 pm, Hyatt Regency, Stetson Suite FG
    Round Table on Trade and Development (F1)
  • Jan 07, 2012 8:00 am, Hyatt Regency, Columbus CD
    Correct Measurement of International Financial and Trade Flows (F1)
  • Jan 07, 2012 8:00 am, Hyatt Regency, Crystal A
    Trade and Labor Markets: Evidence from Matched Employer-Employee Data (F1)
  • Jan 07, 2012 10:15 am, Hyatt Regency, Field
    Intermediation and Transport Costs in International Trade (F1)
  • Jan 07, 2012 2:30 pm, Hyatt Regency, Toronto
    Estimating Trade Elasticities (F1)
  • Jan 07, 2012 2:30 pm, Hyatt Regency, Columbus G
    International Trade (F1)
  • Jan 07, 2012 2:30 pm, Hyatt Regency, Water Tower
    International Trade and Trade Policy: In Memory of Robert E. Baldwin (F1)
  • Jan 07, 2012 2:30 pm, Hyatt Regency, Regency C
    New Directions in Trade and Geography (F1)
  • Jan 08, 2012 8:00 am, Hyatt Regency, Dusable
    Advances in International Trade (F1)
  • Jan 08, 2012 10:15 am, Hyatt Regency, Regency C
    International Trade Agreements (F1)
  • Jan 08, 2012 10:15 am, Hyatt Regency, Columbus H
    Multi-Product Firms and Product Quality in International Trade (F1)
  • Jan 08, 2012 1:00 pm, Hyatt Regency, Grand Suite 5
    Global Production Chains (F1)
  • Jan 08, 2012 1:00 pm, Hyatt Regency, Gold Coast
    Labor Market Impacts of Trade (F1)

Trade Diversion on Twitter

Happy new year! I’ve created a Twitter account for the blog. In addition to announcing new posts, @TradeDiversion will occasionally link to or retweet content that doesn’t warrant a full blog post. For example:

You can follow @TradeDiversion on Twitter or see the tweets in the column on the right of the blog’s frontpage, www.tradediversion.net.

Can the US apply CVDs to imports from China?

The answer seems obvious, because the US does apply CVDs to Chinese goods, but here’s what Scott Lincicome calls a “bombshell“:

the US Court of Appeals for the Federal Circuit (CAFC) affirmed a decision from the lower US Court of International Trade (CIT) that the Commerce Department’s current method of applying countervailing and anti-dumping duties on imports from China and other “non-market economies” (NMEs) like Vietnam was invalid because it led to “double counting.” I’ve previously commented on the CIT decision – GPX Int’l Tire Corp. v. United States – and it was a pretty big deal. But it was somewhat limited because it applied to only Commerce’s methodology for applying anti-dumping and countervailing duties simultaneously on the same NME-origin product.

The CAFC, on the other hand, went a whole lot further than the CIT, finding that, under current US law, “government payments cannot be characterized as ‘subsidies’ in a non-market economy context, and thus that countervailing duty law does not apply to NME countries.” So instead of ruling on the discrete “double counting” issue, the CAFC essentially said that the entire CVD law doesn’t apply to Chinese and other NME imports.

That’s an even bigger deal.

His long post has details.

Fair Trade USA vs FLO on scaling up fair trade

It’s been a long time since I regularly followed the fair-trade movement. But Kim Elliott brings interesting news: “the pending break-up between the main US certifier of fair trade coffee, Fair Trade USA, and the international umbrella organization, the Fairtrade Labeling Organization (FLO).” Apparently a major element in the split is that Fair Trade USA is certifying large-scale plantations while the international organization remains committed to only certifying smallholders.

Teferi Mergo: “Impacts of Green Card Lottery on Ethiopian Households”

If you’re keen on development, check out the series of guest posts by job-market candidates at the World Bank’s Development Impact blog. Here’s UC Berkeley’s Teferi Mergo describing his paper on the effects of international migration on source households:

Although international migration can yield large benefits to individual migrants from poor countries, the net impact of migration on the source countries is unclear… In my job market paper, I add to the literature by focusing on migrants from an extremely poor country – Ethiopia – who are randomly assigned the possibility of migration through the United States’ Diversity Visa lottery. My analysis is based on a specially designed survey (which I conducted) of households of previous DV lottery winners and lottery participants in Addis Ababa…

I was able to get only a complete listing of lottery winners… It is not possible to obtain a comparable list of DV lottery applicants from which to identify lottery losers. Fortunately… around 50% of Addis’ households are conservatively estimated to have played the lottery at one time or another, thus allowing me to draw a representative sample of the control group from the city…

The study finds that having a family member win the lottery and migrate has significant positive effects on several dimensions of the remaining family’s standard of living. Families of DV migrants spend about 30% more on food, are thus better fed and have higher body mass indexes. Moreover, families of winners possess more and better quality consumer durables, which include personal computers, modern cooking stoves, household furniture and home entertainment appliances. Having a family member who won the DV lottery also gives families access to improved sources of drinking water and sanitation facilities. Winners’ families, however, have about the same savings and physical capital accumulation as other families. Most of the positive effects of emigration appear to be on the consumption side of the family budget…

A final interesting conclusion is that participants in the DV lottery (both winners and losers) have substantially higher outcomes than non-participants, suggesting that Ethiopian DV migrants are indeed positively selected. Non-participants have lower food spending, lower variety and value of durables they own, and less access to clean drinking water and convenient sanitation facilities. They are also the least likely to use banking facilities and save. Interestingly, however, lottery non-participants spend more on leisure activities.

Wow, that bears repeating: “Around 50% of Addis’ households are conservatively estimated to have played the [US green card] lottery.”

“Miserly progress made on Doha trade talks”

Alan Beattie has a long(ish) summary of the Doha round’s dim prospects in the FT. It begins: “If Charles Dickens wanted a bleak setting for a rewrite of A Christmas Carol, his classic tale of regret and redemption, he could do worse than the World Trade Organisation.”

Here’s a tidbit that caught my eye:

Bernard Hoekman, director of the World Bank’s international trade department, told a seminar in Washington last week that the bank and others had overhyped the round. When it came to sharing blame, he said, “I can point to myself and my organisation.” The bank produced ambitious estimates of how Doha could boost economic growth and reduce poverty. “Those became a focal point for expectations, and expectations were overblown.”

A decade of Doha

Some highlights from this evening’s discussion of the Doha negotiations at Columbia University:

  • On why it’s called the DDA: “I was facing down a half-dozen trade ministers who said, ‘I stood in my parliament and said there’d be no new trade round.’ So I said, ‘it’s not a trade round; it’s a development agenda’. [:::pffffffttt:::] It’s the sort of thing that doesn’t show up in many textbooks that gets the process going.” – Mike Moore
  • On Doha’s prospects: “I must say, I have never heard Pascal Lamy more grim than this evening.” – Merit Janow
  • “If Doha goes, no one is ever going have a multilateral round again.” – Jagdish Bhagwati

[My transcriptions are closer to quotations than paraphrasing, but these are not verbatim.]

Also on Doha, don’t miss this Alan Beattie tweet.

One way to increase access to the US labor market

Tim Lee, writing for Ars Technica, describes a Silicon Valley startup aiming to facilitate the creation of more Silicon Valley startups by improving labor mobility:

Blueseed plans to buy a ship and turn it into a floating incubator anchored in international waters off the coast of California…

Immigration law makes it difficult for many would-be immigrants to get permission to work in the United States. For example, there’s an annual cap on the number of H1-B visas available for American employers to hire skilled immigrant workers. However, permission to travel to the United States for business or tourism is much easier to get.

Marty pointed to the B-1 business visa as a key part of his company’s strategy. With a B-1 visa, visitors can freely travel to the United States for meetings, conferences, and even training seminars. B-1 visas are relatively easy to get, and can be valid for as long as 10 years.
Blueseed plans to provide regular ferry service between the ship to the United States. While Blueseed residents would need to do their actual work—such as writing code—on the ship, Marty envisions them making regular trips to Silicon Valley to meet with clients, investors, and business partners…

Blueseed’s business model seems like a long shot. Buying, outfitting, staffing, and filling a 1,000-person ship seems like a tall order for even the most talented three-person team.