On jobs, wages, and capital

A question from Yahoo! Answers:

How can we keep Americans working and keep our economy strong,…?

…when companies lay off American workers in order to hire foreign nationals for a lower salary?

You could start by understanding that jobs lost in the manufacturing sector by and large DO NOT go abroad; they go to machines. In fact, job loss in manufacturing is occurring worldwide, and one place where job losses in manufacturing have been the most severe is (drum roll…) China. Between 1995 and 2002, the U.S. lost about 11% of its manufacturing jobs; China, more than 15%. Anyone who seriously studied the issue knows this. Very few of those who write for the popular press do. So stop thinking about non-issues and think about the real issues…

The real issue is not so much about the sheer number of jobs (except during the Great Depression, there always were and still are jobs that no one wants because they don’t pay well) as it is about the number of jobs that pay high wages. And therein lies the rub: the vast majority of high-paying jobs are those that are well-capitalized. A port worker, a locomotive operator, or a skilled machinist often has at his disposal machinery that is worth hundreds of thousands (or even millions) of dollars. So the key to creating high-paying jobs really is job capitalization.

Job capitalization in turn is impossible without capital accumulation. And what little we know about capital accumulation suggests that the most important route of capital accumulation is… inheritance. (Lawrence Summers and Laurence Kotlikoff did some seminal work on the subject back in early 1980s; it appears that Americans save and invest very little of what they earn, but a lot of what they inherit.) So in the long-run, the number of high-paying jobs is a function of how much assets passes between generations…

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