Friday, April 6, 2018

Where the Jobs Are, and Comparative Advantage

There's a thing called comparative advantage; I actually did a Youtube video on it a few years ago (first video below) -- you'll find it instructive.

In a nutshell, different countries do different things more efficiently, and when we allow for/exploit those comparative advantages we ALL get richer.

Yes, per the graph below, there are fewer manufacturing jobs in the U.S. today versus prior to the 2008 recession. Just for illustration sake, let's assume that the folks who are bemoaning that fact are correct (they're not, by the way) that those jobs were lost primarily due to a massive shift to foreign labor markets, as opposed to technological advances (the truth).

So, some emerging countries, by and large, do the manufacturing that requires human labor more efficiently/profitably than we do (now that appears to be a valid assumption). Which some would have us believe is the chief reason for the following:

That's 2,127,000 fewer manufacturing jobs today versus the pre-recession peak.

But what about the service sector? Doesn't the developed USA with all of its technological advancement have a comparative advantage when it comes to virtually all manner of services? You bet it does!

That's 11,316,000 more service sector jobs versus the high reached just after the start of the last recession. In other words the gains in service sector employment have been 5 times greater than the loss in manufacturing over just the past 10 years.

Looks to me like America has found its niche! Which is probably where we should be focusing much of our attention...

Here's me on Comparative Advantage and protectionism:

By the way, any of you who might think protectionism is a partisan affliction, we shot this during the previous administration:

Here's one on tariffs:

1 comment:

  1. Perhaps you might be interested in reading this paper on comparative advantage.