In class we have been looking at the Heckschler Ohlin Model. Part of this model is looking at countries that are either capital intensive or labor intensive. The article I found China VS The US economy the writer looks at the difference in the two economies of the two countries. The article talks about how China has a more labor intensive economy. although both countries have similar unemployment rates China's labor force is much larger than USA's due to size of China's population. It would therefore be safe to assume that China has the stronger economy. However the article then discusses how the USA is way ahead with its income over the Chinese and how quality of life is better for the individual in the US. USA are a more capital intensive economy and because of this its productively is high and its labor force is more specialized. Due to the huge population in China, the workers incomes there are very low due to the high supply. The US workers get a much higher income and this seems to link to an increase the productivity of its workers. Because of the income differences between the two countries the US labor force are much more willing to work than the Chinese and this can be seen in the increase in unemployment that China has seen in the last few years.
However the article talks about how China's economy is growing faster than the USA's and if the US are not careful China will soon be ahead. With China's labor force size, once they invest more into capital they could have a higher utilization of capital which will increase the countries productivity massively. At the moment it seems like being capital abundant is better for a countries productivity, yet if a country such as China was willing to put its huge number of workers to use on new capital and better technology it could easily dominate in productivity and trade.
It's interesting that unemployment rates were used in this article. In Macro we discussed how unemployment rates, although useful, can sometimes be skewed. For example: the unemployment rate takes into account the people who are in the labor force. If you lose your job and go on unemployment you are counted in the rate, but as soon as you leave the labor force and stop searching for a job you are no longer counted in the equation. This can lead to skewed numbers that can lower the percentage of unemployed. It will be interesting to see who wins the POTUS election because unemployment rates, according to history, have a direct relation with which party holds office. If the rate goes down then the party in office at the time will retain it, if the rate goes up, the unemployed will vote for change and the office will switch parties. Lets see if history keeps repeating!
ReplyDeleteI found this post to be very interesting. I'm curious as to what our next president will do with respect to trade with China. If China transitions toward producing more capital goods, a void for a labor-abundant country with low wages would be created. This could mean that the US would increase trade with another labor abundant country such as India. The effect this would have on China's terms of trade would also be interesting. I wonder what the impact this would have on the Chinese workers. Producing more capital goods could leave a portion of the large Chinese workforce unemployed.
ReplyDeleteI found this post to be very interesting. I'm curious as to what our next president will do with respect to trade with China. If China transitions toward producing more capital goods, a void for a labor-abundant country with low wages would be created. This could mean that the US would increase trade with another labor abundant country such as India. The effect this would have on China's terms of trade would also be interesting. I wonder what the impact this would have on the Chinese workers. Producing more capital goods could leave a portion of the large Chinese workforce unemployed.
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