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Misconceptions About Comparative Advantage

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Presentation on theme: "Misconceptions About Comparative Advantage"— Presentation transcript:

1 Misconceptions About Comparative Advantage
Productivity & Competitiveness The Pauper Labor Argument Exploitation

2 The Pauper Labor Argument
Foreign competition is unfair and hurts other countries when it is based on low wages.

3 The Pauper Labor Argument
The view that a country loses by importing from another country that has low wages, presumably by lowering wages at home. This view ignores the fact that low wages are due to low productivity, and that the high-wage home country, with high productivity, will have comparative advantage in some products and will gain from trade.

4 The Pauper Labor Argument
Anti-globalization groups made their way to the Summer Olympics to protest the alleged sweatshop conditions of sports apparel factories. Indeed, Nike, Puma and others were the target of a "Fair Play at the Olympics" campaign. But the accusation that multinational corporations exploit the citizens of developing countries is simply false, according to empirical data.

5 The Pauper Labor Argument
A study examined data for Indonesian manufacturing plants employing more than 20 workers between 1975 and Their research revealed: Foreign-owned plants paid 44 percent above the average wage for blue-collar workers; white collar workers were paid 68 percent more than average. Wages in plants that were domestically owned but then taken over by multinational corporations increased far more than domestic plants -- about 17 percent for blue-collar workers and 33 percent for white-collar workers. Plants owned by multinational corporations employed more blue-collar workers than domestic plants.

6 The Pauper Labor Argument
In a separate study, another person found that developing countries have trended toward higher labor standards, and multinational corporations view them as an attraction, not a hindrance. Moreover, the OECD reveals that none of the 75 most important trading nations have curtailed union rights since the early 1980s, and in fact, 17 countries have actually improved union rights.

7 The Pauper Labor Argument
Whether the lower cost of foreign export goods is due to high productivity or low wages does not matter. All that matter to home is that it is more efficient to “produce” those goods indirectly than to produce directly.

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