How is the United States marginal productivity of labor sizing up to other emerging markets these days? Over the past decade high labor productivity rates in emerging markets (i.e China and India) have been worrisome to people in the United States economy, but this article by the Federal Reserve Bank of New York explains who some of the winners and losers will be to increased MPL abroad. I ask the question, should the United States try to intervene in any way (i.e tariffs) to protect the losers at home?
As we have discussed in class, an increase in MPL for any country is viewed as a good thing. This can strengthen the wages in the sector and raise the living standard within the country. We have also talked about in class that with an increase in MPL this drops the price in the good or service being sold making it more affordable for consumers to attain the good or service. Another thing is that countries who tend to have lower MPL will be worse off compared to those with a higher MPL.
In this case the two major emerging markets that are experiencing rapid gains from increased MPL is China and India. From 1995 to 2005 China's labor productivity rose 6.4%, India's rose 4.4%, while the United States only rose 2%. The direct effect that they will have on the US economy is that there will be increased competition. These competing firms will either have to exit the market or become more efficient. Although firms will face competition this will help the US consumer as prices drop due to increased supply. The effects of United States exporters should increase as fast labor growth leads to more income, thus the purchasing of more goods.
So again, with an increased MPL from foreign countries, is it beneficial to the overall US economy for tariffs to be imposed?
I think that they should not. This is because if they tax the imports then that will cause the price to go up. This will cause our terms of trade to decrease. We do not want that, so I do not think that we should impose the tariff.
ReplyDeleteA question should be asked that even though the MPL is rising faster for foreign countries than the US, is it substantial enough to actually call for a tariff? We saw in our text on page 39 (table 2-2) that the average person in the United States can harvest 27.5 bushels per hour where as China can only produce .1 bushel. Now it is a lot harder to increase efficiency when you are producing a high yield already versus a country that has a lot of ground to catch up in.
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