How China and Wal-Mart Help the Poor to Pay more Rent

Good interview last week on EconTalk, with Enrico Moretti who has a new book, The New Geography of Jobs. Some places are growing and innovating, some stagnating and declining.  Which one would you rather live in? Enrico seems to prefer the innovative one, where workers are more educated (at least in the credential sense), jobs are available, and even if you’re working in a local service job — barber, dentist, whatever — your wage will be higher.  Host Russ Roberts keeps Moretti pretty much honest, sure wages will be higher but so will — they don’t dare use the phrase — economic rent. And so if you’re a homeowner, you benefit (assuming of course that you bought before the innovative, growing local economy was widely recognized), while if you’re a renter, perhaps not.

From the interview, it appears that the book includes some analysis of how working people benefit from low-cost imports and big-box stores. I don’t doubt it, if the working person can afford to support an auto-centric way of life then these developments do benefit her/his standard of living.

Moretti suggests that places will be better off if their workforce has more formal education.  Roberts is at his best here, pointing out that, sure, college professors would say that.  Moretti does seem to recognize that, as more people get credentialed (“skilled”), this will tend to reduce the earnings gap between the unskilled and the specialised. He does not say that it does so by reducing earnings of the skilled, but we can figure that out.

The most irritating part, for anyone who understands political economy, is the assertion that wages for service workers are higher in innovative, growing regions because service workers are more productive there.  I don’t know if they’re more productive, maybe a dentist fixing the teeth of $100,000 engineers is more productive than one who does the same for $25,000 laborers, I have no idea.  But regardless, wages aren’t determined by productivity.  They’re determined by the alternatives: If the employer can get competent labor for less, she almost certainly will do so, over time if not right away. And if the worker can find a job that, all things considered, is more satisfactory, why wouldn’t he take it?

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