then it is fair to say China is twice as good as the US at making iPhones, is it not?
No it is not, and here is why. The reason China has 1⁄6 the salary is because average productivity of the chinese hour is 1⁄6 average productivity of the American hour. There are multiple effects “on the margin” that all conspire to keep this true. Essentially if the Chinese hour was on average worth 1⁄5 of an american hour, but only cost 1⁄6 of an american hour, more and more businesses would move to china to exploit this cost advantage, until demand for chinese hours pushed their price up to 1⁄5 of the price for an American hour.
So lower prevailing wage is not some sort of national resource, it is a statement that the resource is on average less productive.
However it does mean that the jobs that will differentially go to China are ones generally where more labor is particularly helpful in getting the job done, labor intensive jobs.
Essentially, a lower prevailing wage in one place vs another is a measure of the absolute productivity difference between the two places. All the feedback forces in economics conspire to make this so.
Having said that, a country with a less productive work force will find it has a comparative advantage at making the things it can make with labor. In the case of assembling things on assembly lines, Chinese workers do (at least) as well as American workers. In terms of making movies, or building new technologies from scratch, American workers seem to do a lot better than Chinese workers (in Hollywood and Silicon Valley). So we wind up with a lot of manufactured goods from China being traded for movies and high tech from the US.
What you say is partly, or even mostly true. But you should not neglect the simple fact that the cost of living can vary vastly. There are places in the world where, say, $10 a day is a respectable sum, and one who earns that much has all the necessities of life plus some left over. This is more true in Africa then it is in China, but the point can still potentially carry, if the exact figures line up. Someone in China may earn a fraction of what the equivalent person does in the US, but may have a similar salary in purchasing power adjusted terms.
Someone in China may earn a fraction of what the equivalent person does in the US, but may have a similar salary in purchasing power adjusted terms.
Considering only goods that are neither imported nor exported, this could in principle happen, although I doubt it ever gets as far as equality. But considering goods that are either imported or exported, the worker with the lower wage will always have a much lower purchasing power. This is because the market for these goods is international so the tendency is for these to cost the same in international terms in both locations, so the guy with $100/day can buy more of them than the guy with $10/day.
No it is not, and here is why. The reason China has 1⁄6 the salary is because average productivity of the chinese hour is 1⁄6 average productivity of the American hour. There are multiple effects “on the margin” that all conspire to keep this true. Essentially if the Chinese hour was on average worth 1⁄5 of an american hour, but only cost 1⁄6 of an american hour, more and more businesses would move to china to exploit this cost advantage, until demand for chinese hours pushed their price up to 1⁄5 of the price for an American hour.
So lower prevailing wage is not some sort of national resource, it is a statement that the resource is on average less productive.
However it does mean that the jobs that will differentially go to China are ones generally where more labor is particularly helpful in getting the job done, labor intensive jobs.
Essentially, a lower prevailing wage in one place vs another is a measure of the absolute productivity difference between the two places. All the feedback forces in economics conspire to make this so.
Having said that, a country with a less productive work force will find it has a comparative advantage at making the things it can make with labor. In the case of assembling things on assembly lines, Chinese workers do (at least) as well as American workers. In terms of making movies, or building new technologies from scratch, American workers seem to do a lot better than Chinese workers (in Hollywood and Silicon Valley). So we wind up with a lot of manufactured goods from China being traded for movies and high tech from the US.
What you say is partly, or even mostly true. But you should not neglect the simple fact that the cost of living can vary vastly. There are places in the world where, say, $10 a day is a respectable sum, and one who earns that much has all the necessities of life plus some left over. This is more true in Africa then it is in China, but the point can still potentially carry, if the exact figures line up. Someone in China may earn a fraction of what the equivalent person does in the US, but may have a similar salary in purchasing power adjusted terms.
Considering only goods that are neither imported nor exported, this could in principle happen, although I doubt it ever gets as far as equality. But considering goods that are either imported or exported, the worker with the lower wage will always have a much lower purchasing power. This is because the market for these goods is international so the tendency is for these to cost the same in international terms in both locations, so the guy with $100/day can buy more of them than the guy with $10/day.