Wednesday, June 18, 2014

Labor Costs And Export Success

Paul Krugman argues that Germany, and many other countries, have higher labor costs than the US.  He argues that Germany has been a more successful exporter than the US despite its higher labor costs.  Competitiveness requires more than low labor costs.  Germany has been successful because it builds quality products that other nations are willing to purchase at a higher cost (and even with an expensive euro).  Krugman seems to puzzled by this but manufacturing products comprise the bulk of tradable products.  The US decided to become a services economy.  Most services are not very tradable.  We have a trade surplus in services but they are such a small segment of the export market that we run large trade deficits.

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