Friday, September 20, 2013

Additional Commentary on Apple

To complement Brad's discussion of the effects of raising labor costs, I'd like to add a couple of my own observations.

1) In general, if people lament the movement of employment opportunities in low-end manufacturing from more developed countries to less developed countries, they should question why companies have an incentive to establish factories in poor countries. After all, while the costs are lower, the quality of labor and capital is also lower. But the important factor is the disparity between cost and quality. If the U.S. labor market didn't have as many restrictions as it did (minimum wage, mandatory benefits, unions), American firms could afford to employ people for low-value-added manufacturing and still generate benefits for the stockholders.

2) When people complain that American companies use foreign labor, and demand the companies bring the employment back to the U.S., they tend to ignore the benefits for the poor country of those factories. That poor people want to work in such low-paying jobs is evidenced by the fact that they do indeed work there, and firms need have no worry about attracting sufficient labor. While working conditions at these factories are often not desirable, especially from a 1st world point of view, they are much better than the conditions that would otherwise prevail. For example, subsistence farming, prostitution, construction out in the elements, and so on. This is how industrial development progresses. This is how rich countries became rich. Shouldn't the poor countries have similar opportunities?


  1. Your #2 is spot on. I tried to convey this very same thought to my myopic colleagues to no avail. Poor Chinese workers CHOOSE to work in these factories because their alternative is worse. Comparing Chinese and American manufacturing plants is not an apples-to-apples comparison (no pun intended).
    Jeff – you can’t imagine the frustration I experience working with these nitwits. I’m surrounded by statists and government types who live at expense of taxpayers and then demean the very system that feeds them.

    1. That must be quite disheartening. Although I feel your pain, given that most faculty (even many in Business) are statists.

  2. As opposed to those that rail against government who live at the expense of taxpayers and then demean the very system that feeds them. Oh the irony! LOL