Mexicans, Machines and Place

Samuel Staley's picture

The newest Drew Carey video at and Machines: Why Its Time to Lay Off NAFTA-is (IMHO) brilliant, and triggered more than a couple of thoughts about how technology and progress creates practical challenges for planning.

  The point of the seven minute clip, which is also an economically sound analysis, is the following: Machines have done far more to "displace" labor than international trade (and created tremendous economic value in the process). Criticism of NAFTA is really political campaign fodder, pandering to populist economic illiteracy. Why, Drew asks, if we're serious about the "threat" of Mexican (Canadian, Chinese, Indian .) labor on America's workforce, aren't we "demanding" a ban on the real culprit of technological progress? (Well, okay, there are some people in the Animal, Vegetable, Miracle/Kuntsler camp that probably want to do this, but, let's stay on this planet and in the mainstream for now.)

  The question begs a discussion about the changing nature of the national economy and the implications for how we live and work in cities.

  Let's take the first part of the political argument: manufacturing jobs are disappearing. This is true. Although manufacturing wages are going up, the number of people in those jobs is falling, both in absolute numbers and as a share of total employment. Here are the numbers for manufacturing employment according to the US Bureau of Labor Statistics:


1980    19.2 million (21.1% of total nonfarm employment)

1990    17.8 million (16.3%)

2000    17.3 million (13.2%

2005    14.2 million (10.8%)

  So, not only do we have fewer people producing "things," our economy has shifted dramatically to a services based economy. Hold this thought.

  Here's the other part of the story: The value of manufacturing output is going up. The following data can be found in the Economic Report of the President 2007 (Chapter 3; table B-8). The value of domestic production of durable and non-durable goods production is increasing dramatically:


1980    $1.1 trillion

1990    $2.2 trillion

2000    $3.5 trillion

2005    $3.9 trillion

  So, we're producing more, with fewer people. Moreover, our production of tech stuff (computers, IT, etc.) is off the charts in percentages, an indicator of how much easier it is for people to use technology to do things not even contemplated in 1980. Remember, the first computer mouse was not distributed with a computer until 1981 (a Xerox, remember them?), the first commercially viable laptop computer wasn't introduced until 1981 and not produced on a large scale until 1988 (for the military), and the first practical web browser didn't come on the scene until the early 1990s.   As I write this from my home office in Ohio, working for a think tank with 45 people on staff that is fully virtual, I'm reaping the benefits of these changes. My office is wherever I need to be. I pick my kids up from school or athletic practices, job when I want, and re-arrange my work day according to our family needs. What does this mean for planning?  

Here are two questions that are crucial for the future of planning.

  Question #1: Given the current pace of technological change, how much can we realistically expect to plan in our communities?

  Answer: Less. (I'm going to punt the question of "how much less" for now.)

  In an economy where most people have defined needs that don't change, such as getting to and from work in a factory, traditional urban planning is easier and more direct. In an era where economic growth is driven by a dynamic, complex, services-based economy, planning can't possibly handle the complexities imbedded in the thousands of choices made daily by families and workers. The focus is more on providing the environment for living (and working) than managing the detail of living.   Along these lines consider the following two data points on two types of commuting: telecommuting (me) and public transit. 1) In 27 of the largest metropolitan areas, telecommuters outnumber transit users. 2) Telecommuting is growing far more rapidly than transit ridership.  

  Question #2: How important is urban planning in a dynamic, services based economy compared to a traditional economy?

  Answer: More.

  Richard Florida is correct-the so-called "Creative Class" is a bohemian group, interested in funky, eclectic urban environments. But they aren't alone. The services economy, and the wealth that comes with it, is releasing entire classes of people from the constraints of place. We no longer are bound to a neighborhood because we work nearby. We are not longer work nearby because our employer is located there. We have amazing mobility by virtue of wealth and the automobile. We have unprecedented ability to choose our homes and neighborhoods. We will be choosier and demand higher quality as a result. We are more sensitive to the quality of place than ever before. 

  So, the paradox is resolved by taking a 21st century view of planning. Planning is both more important and less important than before. It's more important because planners can influence the quality of place and even help customize it. (To test this out, talk to a planner in private practice.) But, traditional planning-rooted in communitywide master plans and detailed zoning-is on the way out. It can't adopt to the particular needs of place and the idiosyncracies households no longer geographically bound to home or work.

Sam Staley is Associate Director of the DeVoe L. Moore Center at Florida State University in Tallahassee.



Michael Lewyn's picture

Let's take that logic a bit further

"In an era where economic growth is driven by a dynamic, complex, services-based economy, planning can’t possibly handle the complexities imbedded in the thousands of choices made daily by families and workers. The focus is more on providing the environment for living (and working) than managing the detail of living."

Does this mean planning can't handle the complexity of reducing traffic congestion? And if so, does this mean that planners can stop trying to sacrifice every other concievable value [such as, say, walkability and bikeability] to the Great God of Traffic Flow?

Question #3

Given the increased population density to be expected in an era of scarce natural resources and rising population, how much can we expect to plan our communities?

Answer: More.

The need to plan for things like mass transit, sewers, roadways, parks, airports, and zoning regulations tend to increase as population density increases. Even sun-belt cities like Houston, Phoenix, and Dallas that have historically avoided it are adding transit, TOD, and zoning ordinances. Now they are scrambling to plan for even MORE transit, commuter rail, acquisition of park lands, etc. I hear that water scarcity is also a big issue these days...

Furthermore, just because some portion of the population may telecommute does not negate the need to travel, if not always to work, then to other destinations. In fact, it is my understanding that most trips are already not work-related.

Planning is paradoxical in many ways

As a recent graduate, now working full time, I'm struck by two sides of planning. Identifying patterns, and developing alternatives. Critics tend to gloss over the quantitative and qualitative identification of patterns, and focus on the development of alternatives. Critics say that the identification of patterns is not scientific enough if qualitative analysis is brought into the report. On the other hand often times they think the alternatives we develop are planners "telling other people what to do." They forget that in planning practice the "do nothing" alternative is always required. Its just not the focus of what we are called to do by our political bosses or the taxpaying public.

A place for NAFTA et al.

So, we’re producing more, with fewer people.

Yet middle-class wages are nowhere near rising like production (1.).

Tell me again why we want to maintain or increase dependence on this system?



Would the opposite be better?

So would producing less with more people be the way to go? I doubt paying 100 people to dig a hole with shovels instead of 1 man with a bulldozer is a good thing...

Yes, if the opposite is rising wages.

The question is why have wages not gone up concomitant with productivity, not whether we should revert to 40 people pushing shovels around instead of one Bobcat. That is: there are many unanswered questions in this essay, which is dependent upon technological optimism on a finite planet.

A separate question: what are people for, anyway?



Apples and Oranges

Are you saying that industrial wages have not gone up with increased productivity? Projecting a graph of average wages for everybody and comparing it to industrial productivity isn't really an apples to apples comparison. Plus, there's so many other factors. Perhaps the increased productivity has decreased the costs of the goods produced, and decreased costs have raised standards of living for everyone despite the flatness of average wages... all it takes is an empirical look around at the standard of living of the average family today compared to the average family in 1960.

As to what are people for? Apparently, judging by much of the commentary here, people are something to be controlled to produce the commentator's vision of utopia.

I actually don't know what people for. Honestly, I would be very interested in your answer to that question.

Real Wages

"Perhaps the increased productivity has decreased the costs of the goods produced, and decreased costs have raised standards of living for everyone despite the flatness of average wages"

No. When they calculate real wages, they correct for price changes - which means that the figure for real wages incorporates decreased or increased costs of goods produced.

Charles Siegel


You are right in that real wages are calculated by taking inflation out of the picture. However, that has nothing to do with the real prices of goods (except that they are both adjsuted for inflation). To get at what you are implying, you have to look at real wages versus the real prices of goods (both adjusted for inflation) to get an idea of what average wages are able to purchase. There are two variables in that equation (real wages, real goods). There's also a bit more relativity in the goods part of the equation as the the quality of the relative good may increases of decrease over time (i.e. a car today is not really directly comparable to a car in the 60s as a car today is far superior in terms of safety, engineering, comfort and reliability).

CPI and wages.

I am always interested to see that not everyone seems to know that middle-class wages are effectively stagnant. When viewed against CPI, the picture is worse.

The increase in productivity gains are not going to people making things (does America make anything these days?).



US Manufacturing

Actually, the US is the largest manufacturer in the world (as measured by output). China is rapidly catching up though.

In terms of quintiles yes, quintile real wages are stagnant. However, individual movement between quintiles is definitely not static. It's easy to confuse block statistics with the individual life earnings curve of of actual people though.

Quintile migration.

However, individual movement between quintiles is definitely not static.

Sure, this is the required Objectivist-type reply. I believe it can happen for the educated class, which is ~ 1/4 of the population. I haven't seen Objectivist types provide evidence that migration occurs past the 2nd quintile, however, for the uneducated class. Perhaps you have some numbers?




Gotta love your typical response... so now I'm an objectivist? Now you can pretend their arguments are mine... good work.

I'll go work on the numbers, but the easiest answer is my father-in-law. Poor family, high-school graduate, constrcution worker, HVAC worker, HVAC journeyman, HVAC master, HVAC small-business owner, retiree. 40 years and right through all of your quintiles and back. But I guess he must be part of the "educated class" that even has the remotest possiblity of advancing beyond the second quintile... stupid him, he should know that he's a living impossibility (maybe he's an objectivist?).

Treasury Department Study

Interesting Reading. Data is gleaned from following individuals' incomes over time via their tax returns. Among the interesting nuggets:

"Nearly 58 percent of households in the lowest income quintile in 1996 had moved to a higher quintile by 2005. While 29 percent moved up to the second quintile, the same percentage moved up at least two quintiles, and about 5 percent moved all the way to the top quintile."

"Middle-income taxpayers also did well with respect to mobility across income quintiles in the population. A much larger portion moved up to a higher income quintile than dropped to a lower quintile. About one-third of the taxpayers in the middle income quintile in 1996 were still in the middle quintile in 2005. While households in the top quintile had a higher probability of staying there in 2005, over 30 percent had dropped to a lower quintile, and 2.6 percent dropped all the way to the bottom quintile."

There are definitely some negatives in the report of course, but it shows the basis for individual income mobility despite the static quintile numbers.

Michael Lewyn's picture

But there's always been mobility

So the existence of continued upward mobility doesn't rebut concerns about stagnant wages, unless perhaps mobility is higher than it was 30 years ago.

Correct, but...

It does have serious implications in crafting economic policy to deal with the wages. Because creating policies based on statisitcal quintiles instead of actual individuals could lead to worse off outcomes for everybody. Also, to your other point, unfortunately mobility has declined slightly from 30 years ago. But the authors of the above study suggest it may just be due to the quintile ranges growing farther apart over that time period.

Treas study.

Thank you for your research. I've seen this report before. It merely gives numbers and doesn't control for age (e.g. young in the low quintile moving up as expected). It also reads as if the middle quintiles - per my implications above - don't see that much more activity upward (the second quintile is more likely to stay in that quintile than move up, the middle quintile almost equally likely to move up as down in panel pop, etc).

The prevalence of downward mobility also is interesting wrt the increasing productivity discussed earlier, and gets at systemic issues that are not on topic for this thread.




First, I appreciate your polite response. Thank you. The study follows the same individuals over a specified time period, so I do not know how one would control for age or if that would even be necessary. However I feel it is an important point against a pure quintile graph to show that while quintiles may remain the same, the actual people behind the statistics move around quite frequently (of course, how much, why and is it good being open to debate).

Productivity And Wages

Until the 1970s, it was a commonplace that wages tend to go up about as rapidly as productivity. That was a key justification of our economy: investment increases productivity, and everyone benefits, because increased productivity allows increased wages without increased costs for businesses. But now that link is broken, at least for lower-income workers.

Charles Siegel

Workers are not necessarily everyone

Investment still does increase productivity. The question you are asking is, I think, about who should benefit. Should the workers gain, in wages, all the benefits of increased productivity? I would find it hard to justify the answer as a 100% yes. Some should of the benefit should go to the investor, and some of the benefit should go to the purchaser in the form of lower prices...which is where a lot of the benefit has been going since the 1980s. Lower real prices for goods and services benefits everyone (even if average wages are steady), not just the worker (also, is the worker actually doing any more work....100 guys with shovels are working a heck of a lot harder than one guy in a bobcat?).

I agree, that some of the rungs on the economic ladder have been pulled out for lower-income workers, but I think that a lot of that has to do with ill-conceived governmental policy than economic productivity.

Productivity And Wages Again

Actually, if wages go up as much as productivity, then workers and investors benefit equally.

Take a very simplified example. A worker produces one widget in one hour; the widget sells for $50, the worker gets $25 and the company gets $25. Suddenly productivity doubles and the worker produces two widgets in one hour; the two widgets sell for $100, the worker gets $50 and the company gets $50 - IF wages increase as much as productivity. If wages don't increase as much as productivity, then the company gets more of the benefit of increased productivity than the workers.

As for the claim that some increases in productivity should go to lower costs, you need to understand how price indexes are used, as I say in my post below. You will see that your statement is meaningless if you are talking about prices and wages in constant dollars.

Charles Siegel

In Real Life

Except that in real life the widget company lowers it's prices to beat it's competition and sells the widgets for $40 each. The worker and the company may get slightly more profit (but not as much as in your example), but the society as a whole benefits from cheaper widgets. Scores of widget makers do this day after day in highly competitve industries. Soceity gets lower priced goods (in real terms) and wages stay flat... still more people are better off than before. We can talk until blue in the face about price indexes, but your still leaving out everyone else and treating the benefits of productivity as divisible into a two person/party equation.

What Price Indexes Do

"Soceity gets lower priced goods (in real terms) and wages stay flat"

A very confused statement. The CPI that we use to determine real prices and wages is calculated to correct nominal prices so it costs the same amount to buy a given basket of goods. By definition, the price of goods in real terms remains constant.

(Also, I said that two-party example was very simplified, but I made it simple so you would get the basic arithmetic involved: if wages go up as much as productivity, that means workers are getting the same share, not a larger share, as you claimed earlier. In fact, if you look at the numbers over the last couple of decades, you will see that almost all the benefits of higher productivity are going to higher profits, not to higher wages.)

Charles Siegel


I see what you are saying, and again, you are technically correct, but just think through it a little bit to understand that the CPI is, by nature, an imperfect calculation. Here's an example for you: cell phones. In the 80s, cell phones were primitive and very expensive. Over time, people found ways to mass produce them and have consistently improved the technology. Today, basic cell phones (which are thousands of times better than the original versions from the 80s) are given away free with certain wireless plans. The real price of the phone has come down despite the increase in the CPI from 1980 to today as you get much more for your money (even if it's still jsut a cell phone). There's no way the CPI can take these things into account...something along the lines of a substitution effect. Another example is new cars. Just compare a basic new car in 2008 to a basic new car in 1990. The engineering, reliability, safety standards, emissions standards, etc. of the new car today are much better than the new car of 1990. In CPI terms, the prices are the same, but what you get for your money versus what you got for your money is different...real prices have dropped because you get more for your money. I know the CPI attempts to adjust for this, but again, it is imperfect. It works for something like a mango, as a mango is a mango is a mango, but not certain items.

All one has to do is look around. Americans of every class live much better (in terms the qaulioty of goods owned) than the equivalent American 40 years ago (just compare a Ford Focus to a Ford Pinto, or a new tract home to a 60s tract home, a new dishwasher to an old one, a new ipod to a...?, etc.) even if quintile wages in real terms are do you explain this? The higher productivity has to go somewhere, you say it goes to profits, but then do profits alone explain the continually rising standard of living?

CPI Imperfect

You are right that the CPI is imperfect, but that cuts both ways. Many products are higher quality, as you say, but many products are lower quality: in the 1950s, toasters were chrome and now they are plastic; in the 1950s, people at at diners where they cooked your hamburger to order, now people eat at fast food restaurants where the food loses its taste as it is kept warm. Today, the coffee is much better, but the hamburgers are worse, and it is hard to account for either of these. I live in a house built in 1907, and it is far better than anything built today in terms of the materials used and the quality of construction.

I also doubt that Americans at all income levels are living better. In the 1950s, virtually all American families could afford to take care of their own pre-school children, and now most families feel they can't afford this and have to put their pre-school children in day care because they need a second income to survive. I would say that is a worse way of life, and it also explains why families seem to be consuming more even though wages are stagnating: because more people are working at those stagnant wages.

Charles Siegel

Living Better

I do agree in part with your second point, that it is harder for some because two people per household now have to work to afford the desired lifestyle rather than one. However, I think that theory does not hold true across the country ( although it certainly is true in the Bay Area - where we both live). But I have my own theories as to why that is... (although it's no secret as to why the Bay Area's middle class is vanishing).

Michael Lewyn's picture

hourly wages aren't the only statistic of relevance

Wages aren't the only possible measure of compensation, especially in a world where (a) not everyone works in hourly manufacturing jobs and (b) part of compensation is fringe benefits not reflected in wages (e.g. fringe benefits).

Other measures are more favorable (see for more information):

1. Personal consumption expenditure per capita have DOUBLED between 1975 and now in constant (inflation-adjusted) dollars, from $13,000 to $26,000 (id., table 657);

2. Disposable personal income increased from $15,000 per capita to $27,000 (id.).

Per Capita Figures Vs. Wages

I don't think we can go by per capita income and consumption and consumption expenditures, because inequality has increased since 1973. Per capita figures can increase this much if income and consumption expenditures are stagnant for the lower 50% and quadruple for the upper 50%.

Also, more people are working longer hours than in 1973.

Wages are a good proxy for the income and consumption expenditures of lower income workers (who tend to earn hourly wages rather than salaries, stock options, capital gains, etc.) Because they are hourly, you don't have to correct them for longer work hours.

Charles Siegel

Free Time

Actually, American workers have more free time than ever (sorry I could not link to the whole story, nor do I have my print version in from of me to be able to scan):

Now, I do think more people are working than ever before though...

Debates About Free Time

There are different opinions. Liberal economists have figures showing that Americans have been working more since the 1970s (beginning with Juliet Schor, The Overworked American), and conservative economists have figures showing that Americans are working less.

Note that Schor only counts time at paid work.

Aguiar and Hurst count time at all work, including housework and errands. This seems a bit dubious to me, since they don't tally the benefits of this unpaid work. Eg, Americans may be spending less time at housework, but as a result, they may have dirtier houses than they used to.

Since we have been talking in this thread about income earned at paid jobs, it makes sense to also talk about time spend at paid jobs.

I think the common-sense interpretation of all these liberal and conservative figures is: 1)Americans are working longer hours at paid jobs. 2)As a result, they don't have time to do things for themselves, like cooking, cleaning house, and caring for pre-school children. 3)Because they are tired from working long hours at their paid jobs (as the liberals say), they spend more of their time away from work doing things to relax rather than doing productive things (which is why the conservatives say they have more leisure). 4)They manage this by living in sloppier houses, putting their children in day care, eating fast food, and doing other things that lower the quality of their life.

That is just my impression, and this is a matter of debate among economists.

Charles Siegel


I wasn't aware of the Schor study...I will have to check it out.

Schor Again

The Overworked American was written in 1992, but Schor has kept producing similar figures since.

I see that The Overworked American is available on for only $3 - including postage.

Charles Siegel

Free time and Transportation - A digression

When I was taking travel behavior analysis at grad school we looked at differences between male and female travel patterns. (Commuting in America III, Pikarski). They showed men travel longer and farther for work than women controlling for income and education, but that women do more chauffeuring and trip chaining. Take this with the fact that only 15% of daily traffic is commuting to and from and work, and the transportation academics paint a picture that women often settle for jobs that are closer to home and engage in more trip chaining in order to care for the household. But shorter trips are rising, because people travel by car more often to supermarkets, daycare, dry cleaners, and restaurants. With more women in the work force one idea is that people are basically 'outsourcing' a lot of domestic duties such as cooking and cleaning.

This little digression is loosely written, Charles, but it does coincide with some of the figures in your book "The End of Economic Growth". Americans work longer hours, spend more time traveling to and from work, and spend less time cooking and spending time at home. Again, this is a slight digression from this thread and brings in the impact of these forces on travel behavior.

Michael Lewyn's picture

Well, maybe...

There is some truth to your point- poverty rates are about the same as they were in the 70s, indicating that incomes for the poorest 10% or so might be stagnant.

On the other hand, the incomes of the lowest 10% aren't real relevant to the original discussion of international trade. I could be wrong- but my off-the-top-of-the-guess is that low-income hourly workers aren't primarily in manufacturing (where international competition is most likely to be relevant) but instead are in services (where international competition is not so relevant).

In other words, overall wages aren't really relevant here- its manufacturing wages that matter.

Stagnant Income

The figures that I have seen show that the lowest quintile's income has stagnated, and the second quintile's income has either stagnated or increased slightly, depending on how you correct for inflation, family size, etc.

International competition is not *as* relevant in services as in manufacturing - but try calling the customer service representative at your bank and try guessing what country he or she is in.

"In other words, overall wages aren't really relevant here- its manufacturing wages that matter."
Since many high-wage manufacturing jobs have disappeared and been replaced by lower wage service jobs, I don't see how you can say that only manufacturing wages matter.

Charles Siegel

Michael Lewyn's picture


"Since many high-wage manufacturing jobs have disappeared and been replaced by lower wage service jobs, I don't see how you can say that only manufacturing wages matter."

Because there's no obvious relationship between the two, that's why. Surely you don't think the loss of the manufacturing jobs has created the service jobs, do you?

Mexicans, Machines, And The Lump Of Labor Fallacy

"Machines have done far more to “displace” labor than international trade (and created tremendous economic value in the process). Criticism of NAFTA is really political campaign fodder, pandering to populist economic illiteracy. Why, Drew asks, if we’re serious about the “threat” of Mexican (Canadian, Chinese, Indian….) labor on America’s workforce, aren’t we “demanding” a ban on the real culprit of technological progress?"

Reason's video is based on (or is responding to) the famous "lump of labor fallacy" - the idea that there is a fixed amount of labor needed, and if machines or Mexicans take over some of the labor, there will not be enough left for American workers. That is why it talks about "displacing labor."

But this is not the real objection to NAFTA. The real objection is that it lowers wages of unskilled workers by making them compete with unskilled workers with very low wages and unsafe work conditions. The same is happening to skilled workers because of outsourcing.

Technology does not depress wages in this way. Historically, more efficient production has allowed wages to increase as productivity increased - though that link has been broken during recent decades largely because of global competition with low-wage workers.

I think Staley would understand this issue better if the Reason Foundation told him that they are outsourcing his job so they can replace him with a writer who earns one-tenth as much as he does.

I am not passing judgment on the issue of free-trade vs. protectionism. I am just saying that Staley should address the real issue of downward pressure on wages rather than using the lump of labor fallacy as a straw man.

Charles Siegel

Staley's outsourcing

I'm quite sure Staley gets what you are suggesting and I'm also quite sure that if Reason could find a Phd economist who specialized in urban policy that could eloquently advocate the property-rights position for 1/10th of the cost, they would do it.

That is precisely the point though, right? They can't. Surely, that is what has happened and will continue to happen in the production of durable goods. The benefits of any of these productivity gains will accrue to those who position themselves to receive them. The 48 year old assembly line guy may not want to learn how to be a database administrator or network engineer, for example, but it would seem a better public policy to subsidize the adaptation of the workforce to the changing economy as opposed to restructure the economy back to the 50s.

More importantly, why all the arguing over the beginning of the blog when that was really a setup for the main point which was the last part of the blog - about planning. I think Staley's thoughts here are on point. You?

Replacing Staley

Sounds like a good business opportunity. I am sure there are, or could be, plenty of PhD economists in India who could do as well as Staley, Randal O'Toole, etc. at much less cost. (This is not an insult to Staley and O'Toole. It just means there are talented people in every country, and lots of them in a country with over a billion people.) We just need an employment agency to connect these people with right-wing American think tanks.

Of course, this employment agency doesn't exist because there are not enough right-wing think tanks to support it. If there were as much demand for right-wing PhD ideologues as for computer programmers, I expect that Indian schools and employment agencies would provide them as readily as they now provide computer programmers.

Then Staley would lose his job as a right-wing ideologue, and as a result, he might turn into a left-wing ideologue. The old joke is that a conservative is a liberal who has been mugged. The new joke could be that a liberal is a conservative who has seen his high-pay job disappear overseas.

(Seriously, I should add that I am not totally against globalization, but I think we have to consider and mitigate its effects on American workers, not deny these effects, as the Reason Foundation does.)

Charles Siegel

Michael Lewyn's picture

not sure which of us is getting Staley's point,but...

1. I think the video's key point is not so much pro-NAFTA (though certainly it is) as that NAFTA and trade really aren't as important as automation.

2. I don't see how "technology does not depress wages" if technology is cheaper than labor.

Automation And Wages

Historically, technology that increased productivity went hand-in-hand with increased wages from the mid-nineteenth century until the 1970s. That is the historical fact that we need an economic theory to explain.

I think the answer is that automation doesn't put downward pressure on wages. It increases the amount that a worker can produce, but in a dynamic economy, new jobs are created for the displaced workers (since there is not just a lump of labor needed), so there is not higher unemployment that puts downward pressure on wages. Because workers produce more per hour, employers can afford to pay them more per hour. Unions help to get workers this higher wage per hour.

By contrast, competition from low cost workers overseas does put downward pressure on wages. A factory in the United States cannot afford to pay those higher union wages, if it is competing with factories in countries that pay much less than American wages.

That is why automation replaces more workers than NAFTA but automation does not drive down wages like NAFTA. Or so it seems to me.

Charles Siegel

Michael Lewyn's picture


"It increases the amount that a worker can produce, but in a dynamic economy, new jobs are created for the displaced workers (since there is not just a lump of labor needed), so there is not higher unemployment that puts downward pressure on wages."

Why will new jobs automatically be created? Why won't new jobs be automatically created for workers displaced by imports?

And if other manufacturers using raw materials produced with relatively low-cost labor have lower costs, why won't THEY be able to hire more workers for higher wages? (e.g. an auto company using steel).

New Jobs Are Created

"Why won't new jobs be automatically created for workers displaced by imports?"

New jobs are created, but they are low wage jobs - jobs at Wal-Mart or McDonalds instead of union jobs in factories.

The economy cannot create as many high-wage jobs, because unskilled American workers are competing with unskilled workers overseas who earn very low wages.

Charles Siegel

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