This essay is about pauper labor argument – what does it mean and why it is considered as wrong way of interpreting median earning of workers in the USA. This argument that American captial must be protected against European ‘pauper’ captial and its workers’ ‘pauper labor’. It used to be very popular argument of American protectionism specially but soon it was discovered as a fallacy for its innumerous inconsistencies. Some authors believe that even the name of this argument is wrong – they believe that paupers are those who receive help while people from ‘pauper labor’ countries are producing good and receiving wages for their production. In order to explain one of its inconsistencies, I will analyse changes in median earnings of the workers in the USA and show how pauper labor argument has no connection with these figures.
The economic analysis of changes in median earnings cannot be considered as a consequence of pauper labor argument as small increase of earnings over 30 years is more the result of new demographic groups with lower income entering the labor market in the USA than the result of imports from countries with low wages as it is elaborated by the pauper labor argument. That is why this argument is frequently considered as a fallacy and I will explain why.
Key words: pauper labor, chart, median earnings, labor market, fallacy
The pauper labor argument is one of the ways of interpreting a country loses because of imports from another countries with low salaries and wages by making the salaries and wages at home lower thant at the beginning. As labor was miserably low paid in Europe this argument led to either total exclusion of ‘pauper labor’ goods from Europe or to putting high duties on their products. In reality this point of view is a mistake since it is not taking the following fact into consideration: low salaries are the consequence of low productivity and countries with high wages and high productivity will be able to produce goods at lower cost and therefore will have higher comparative advantage in many products when compared to countries with lower wages. As a result of this they will gain a lot from this kind of trade.
Although it might seem very easy to interpretate the chart of median earnings, we might have to consider the following: even thought the median weekly earnings seem just a slightly increased from 1970 to 2012, we need to think about the influx of new jobs and demographic groups that started working in the USA from 1970. The chart is comprehending both new and old demographic groups in 2012 so based on it it would be difficult to tell weather the income of the old demographics group from 1970 really increased only for such a small percentage or this figures are just the result of influx of lower income groups. Also this chart doesn’t give us information about added value of benefits since today in 2013 we are having a lot more benefits than people in 1970 – more leisure time, high quality goods and better technology. So it would not be possible to link the figures from the chart to pauper labor argument as there are many other issues to be considered.
Steven Levitt, Unintended Economics, why everything you’ve been told about the economy is wrong
Deardorffs' Glossary of International Economics
Lars Magnusson , Free Trade and Protectionism in America: Southern and northern free-traders,