Labor Costs and International Trade

By Stephen S. Golub | Go to book overview

1 The Low-Wage Argument

The chief and controlling question is one of labor, and as long as the labor cost here [the United States] in any department of employment exceeds the labor cost in Europe so long we must have a protective tariff which shall compensate for this difference. And whether the labor is in the rice fields of Georgia and of the Carolinas, or in the wheat-fields of the Northwest, in the factories of New England, the mines of Maryland and Virginia, or the furnaces of Pennsylvania, Ohio, and New Jersey, it must be protected against the less rewarded labor whose products come in competition with theirs. Either this tariff must be maintained to maintain the difference between wages or one of two things must inevitably occur: we must abandon production in many of the most valuable fields of industry here or our labor must come down to the standard of the competing labor.

This statement scarcely differs from those of Ross Perot, Patrick Buchanan, and Richard Gephardt in the 1990s, but it is actually from an 1888 congressional speech by Congressman William McKinley (later president of the United States). 1

The argument that low foreign wages provide an unfair competitive advantage has been widely held in the United States for at least 150 years. As Frank Taussig ( 1920, 48-49) noted nearly eighty years ago,

This belief is not merely widespread: it is something like an article of faith with millions of Americans, probably with a majority of our people, and is as firmly held by most of the business men and

-1-

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Labor Costs and International Trade
Table of contents

Table of contents

  • Title Page iii
  • Contents v
  • Foreword vii
  • Acknowledgments ix
  • 1 - The Low-Wage Argument 1
  • 2 - International Differences in Wages 6
  • 3 - Comparative and Absolute Advantage 8
  • 4 - Is Comparative Advantage Obsolete? 11
  • 5 - Trade in Manufactured Goods 17
  • 6 - Labor Costs and Labor Productivity, 1970-1995 21
  • 7 - The U.S. Labor-Market and Trade with Low-Wage Countries 40
  • 8 - International Labor Standards 44
  • 9 - Conclusions 48
  • Appendix A - Decomposition of Relative Unit Labor Costs 50
  • Appendix B - Methods and Sources 51
  • Appendix C - Statistical Analysis of Productivity and Wages 54
  • Notes 57
  • References 61
  • About the Author 65
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