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Presidential Issues: Economic Growth

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Memo To Hillary Clinton – Service Jobs Do Not Pay Less Than Manufacturing

June 15, 2016

By Tim Worstall

There is a somewhat sad delusion floating around various of the corners of the economic pontification world. Which is that services jobs pay somewhat less than manufacturing jobs. This is not in fact true. If it were true then Baumol’s Cost Disease would not be true. Yet we do know that Baumol is correct on this point. Another way to put this is that average wages across an economy are going to be determined by average productivity across that economy. And if productivity in general rises then all wages are going to rise. We can also think of this in relation to simple supply and demand. If manufacturing jobs pay substantially more than service jobs then people will leave one sector for the other. The increased supply of people trying to join the manufacturing sector will push down wages again until there is some form of balance again.

No, obviously this does not mean that a skilled manufacturing job is going to pay the same as an unskilled service job. The gal turning out monocrystalline turbine blades is going to make more than the burger flipper. But then so is the oncology nurse going to make more than the guy sweeping the factory floor.

This from Eduardo Porter about Hillary Clinton’s ideas is therefore wrong:

A big part of the problem is the erosion of America’s working class. It has been hollowed out as trade and technology have done away with most of the well-paid jobs once available to Americans without a college degree, tipping many of them into a service economy of low wages, uncertain hours and little job security.

We can even test this. We can go and look up what are the average wages for manufacturing jobs, for services jobs and so on and see whether there’s a significant divergence in such average pay. Those numbers are here.

Read the full article at Forbes.com: Memo To Hillary Clinton - Service Jobs Do Not Pay Less Than Manufacturing

Issue Categories : Economic Growth, Hillary Clinton