Free Trade and Salaries in Academia

Somewhere, perhaps not in this blog, we pointed out that the equalization of factor prices was eventually going to affect the salaries paid to economists in academia.  In labor terms, equalization of factor prices means the wages of workers in different countries with free trade between them are driven to the same level. (Wages are a factor of production, as are the other inputs of production, such as materials and capital.) So when a country with high wages trades with a country with low wages, its wages are driven down. (While in the low wage country, wages are driven up.  However, with the high wage country running a massive trade deficit, it seems that wages in that country are driven down more than the wages in the low wage country are pushed up.)

Now you might think that industries insulated from free trade, such as home-building and medicine and- economics, would not be affected, but this is not the case, although the insulation does delay the effects. However, no part of an economy is truly isolated from any other, and  depression of wages in one sector will eventually affect wages in all sectors.  

http://www.insidehighered.com/news/2013/07/10/wisconsin-stevens-point-struggles-high-faculty-turnover-due-low-salaries

This delay has been part of the cause for the relative increase in educational costs and tuition, as in the rest of the country income has stagnated and more recently even declined. In particular, the taxes paid to the states have remained stagnant, and more recently declined, with median income.  The fact that this is also affecting the quality of education, and universities in general, rather than just depressing salaries, is also interesting.  It hasn't affected private universities as much yet, since they are further insulated from the effects of trade, not being as dependent on income from taxation, but it is just a matter of time before they too suffer from degradation.   

This would seem to be part of a general degradation of capital inputs. This may also be because of the chronic trade deficit, rather than merely the effect of the equalization of factor prices.  Net imports of Goods and Services was $560 Billion for 2012. (BEA Table 1.1.5)  That is a trade deficit of 3.5% GDP, which, since it has been persistent for the past 12 years or so, adds up.  See: 

http://anamecon.blogspot.com/2010/04/effects-of-unbalanced-trade.html

 

The nation’s management at all levels seems to be adversely impacted, as we should expect.  One observation is that, with the Sequester, for example, the Federal Government is going after the wrong deficit.

Links 9-19-11: Corporate Salaries; Health Care

Some links: First: http://blogs.reuters.com/david-cay-johnston/2011/09/16/shrinking-corporate-officer-pay/

“Since 1994, business receipts have grown about 50 percent faster than profits, tax data show. Since corporate officers are supposed to run companies efficiently, the narrowing margin on sales is an indicator of poorer performance and thus may partially explain why overall their pay is smaller than in the 1990s, a fact nobody knew until just now.”

These would seem to be the top 5% minus the top 1% guys. We would also expect this as a result of increased foreign competition that is, though indirectly for most corporations, the equalization of factor prices brought about by that foreign competition.

Not so much health care and education, (defense?) though, as these are most insulated from direct foreign competition. So we would expect these to become relatively more expensive, but see also: Baumol’s cost disease, at eg: http://prescriptions.blogs.nytimes.com/2010/01/17/an-economist-who-sees-no-way-to-slow-rising-costs/ for another explanation. But that doesn’t explain the difference between US and Europe.

So next: http://economix.blogs.nytimes.com/2011/09/16/the-role-of-prices-in-health-care-spending/

Seems on of the reasons healthcare in the US is more expensive is because the prices are higher than elsewhere! Everything costs more! Well, yeah, that’s what cartels and monopolists do: drive up prices by restricting access to goods and services. An aside on the government role in all of this: http://www.boston.com/Boston/whitecoatnotes/2011/09/journalist-groups-decry-removal-online-doctor-discipline-data/mRYBMGSUQYNyJb5vChPJsO/index.html

See: http://anamecon.blogspot.com/2010/03/real-problem-with-health-care-in-us.html
for my description and prescription.

Links on the rich, taxes, education 11-04-26

Here are some links:

http://www.altweeklies.com/aan/9-things-the-rich-dont-want-you-to-know-about-taxes/Story?oid=3971382

Progressive taxes are unfair?

http://crookedtimber.org/2011/04/25/the-flip-side-of-noble-lie-side-economics/#more-19786

James Kroeger's comments offer an interesting argument: The rich are no richer even though they're richer. Because they're richer they drive the price of everything rich people like up, so there's no real gain in it for them. He argues therefore, that a (proper) progressive system, without loopholes, doesn't change the actual purchasing power of anybody. I don't think it is quite true, because the flip side of the argument is the poor are no poorer even though they're poorer. Because they're poorer the price of everything they need goes down, so there's no real loss to them. Mmm... Something else is going on... Still, worth the read.


This is a review of Hacker and Pierson’s book “Winner-Take-All Politics”

http://www.economist.com/blogs/democracyinamerica/2010/09/hacker_and_pierson_inequality

Here’s a fun little tax toy, but not to be taken too seriously, as nobody who makes $10 Million pays 36.3% of his income on taxes. (As we have shown elsewhere, http://anamecon.blogspot.com/2010/10/what-income-of-top-1-means-to-rest-of.html the rich pay on average about 17%.)

http://www.wheredidmytaxdollarsgo.com/

This is a piece on the financial problems besetting the nation’s public universities, particularly discussing the University of California.

http://realignmentproject.wordpress.com/2009/07/23/the-balance-wheel-of-social-machinery-universal-public-higher-education/

Part of the problem here, which I mentioned somewhere else, is the equalization of factor prices due to free trade, which eventually propagates throughout an entire economy. However, those sectors of an economy more exposed to international competition ‘equalize’ faster, most labor in particular. This implies that those sectors more insulated from international competition rise relative to the exposed sectors. (The exposed sectors are, in real terms, declining. Since this does not appear so much nominally to be the case, a great deal must be accounted for by hidden inflation. We should not be surprised then, at the steady increase in gasoline prices.) This accounts for part of the relative rise in costs of public education in particular, and government in general, as the tax base is eroded by declining wages, which are converging to the wages of developing countries, like China.

How economists can consider this a good thing entirely escapes me. Well, not entirely. This also accounts for part of the relative rise in health care costs. It also helps account for some of the housing bubble, the price collapse due to lack of demand due to decreased earnings by labor.