"Gary Coffman" wrote in message
...
On Sun, 12 Oct 2003 20:38:10 GMT, "Ed Huntress"
wrote:
"Gary Coffman" wrote in message
.. .
On Sun, 12 Oct 2003 00:26:02 GMT, "Ed Huntress"
wrote:
OSHA and EPA regulations combined amount to around 8% of manufacturing
cost
in the US. The wage differential between high-quality workers in China
and
high-quality workers in the US runs around 96%.
So you have an 8% solution here to a 96% problem.
What percentage of manufacturing cost is labor?
You're not telling the whole story here.
Nearly 100%. If you've bought into the "10 - 12% direct labor" figure and
don't understand why I say nearly 100%, we can discuss.
I'm aware of the marxist theory that all value is labor. I won't buy into
it
for the purposes of this discussion, however. We're comparing
manufacturing
costs here against manufacturing costs there, and for that purpose, the
10%
of direct costs as wages figure is correct.
That's not marxist theory, Gary. That's what you get when you track down
actual manufacturing costs and compare them between the US and China.
Everything in China is cheaper because labor is so much cheaper across the
board, and because many of the intermediate products and services (most
component parts, transportation, most raw materials, even plant construction
and maintenance) aren't traded on world markets. Their taxes are based on
about the same rates as ours, but they pay much less in taxes because they
make less and because everything costs less.
If you ignore this vital fact, you'll never get it. You'll never understand
how the Chinese are able to build injection molds and deliver them to US
customers for 30% of their cost if manufactured here. It's elemental to
understanding our trade situation and the threat to our manufacturing.
So 96% of 10% is 9.6%, meaning
that the difference in direct factory wages have essentially the same
impact
on product cost as OSHA and EPA regulations. And neither accounts for the
much larger difference in product price for US versus foreign made goods.
I don't understand what you're concluding here. Yes, direct manufacturing
labor costs are only a small part of the manufacturing cost difference. No,
that doesn't explain very much. What *does* explain very much is the effect
of such low wage rates on the entire supply chain of materials and services.
Add them all up, and they're close to 100% of the cost of manufacturing any
product. And the difference between those TOTAL manufacturing costs in the
US and China is huge.
If we believe your figures, what's killing US manufacturing
is excessively high wages. Though if you ask the customers,
they're more likely to say it is excessively high prices.
Excessively high wages compared to what? Did we have excessively high
wages
30 years ago? Manufacturing wages then were higher, adjusted for
inflation,
than they are now. Were they too high?
Yes, grossly so. In your own words, we had an underworked and overpaid
middle class 30 years ago.
It sure looks great in retrospect, doesn't it? Until we started to get
bombed with products from low-wage-rate countries, it worked pretty well.
Every major trading country played the same game, and we all made out
nicely. Henry Ford got the idea when he doubled his workers' wages.
But as noted above, that's only a small fraction
of product price.
As noted above, labor cost represents almost all of the cost of any
manufactured product. Somebody has to mine the ore, smelt the iron, roll the
steel, drive the truck, and keep the books. When everybody is making high
wages, compared to those in some other country, costs are high. Then you
have to decide how much benefit it is to you to trade with low-wage
countries on the basis of their absolute wage advantage. There are benefits,
and there can be enormous costs, especially when your balance of trade goes
more negative than the ability of your economy to create comparable-quality
replacement jobs.
Domestic manufactured product prices have grown 12x
over the period (my example of a $3400 car then to a $38,000 car today).
Not a lot of that can be attributed to wage growth.
I don't get the point here. But your conclusion about wage growth is not
correct. Average individual money income in 1967 was $2,464. The same income
in 2001 was $22,851. (
http://www.census.gov/hhes/income/histinc/p01.html).
Add in electronic fuel injection, airbags, and a DVD player, and you're in
the same ballpark, in terms of car prices as a percentage of income.
The great post-WWII boom in US manufacturing occurred
when US products sold for prices comparable to the prices
for Chinese products today. I don't think that's a coincidence.
I think that's the silliest parallel I've ever heard.
Not a parallel, just an observed fact. Demand is elastic, and
consumers have price points where they become resistant
to making a nonessential purchase. For many goods, the US
manufacturers have grossly exceeded that price point. As I
recently told a car salesman, I'm not about to pay more for
a damn Chevy pickup truck than I paid for my house.
Vehicle prices are about the same percentage of individual incomes as they
were in 1967, and 1957, and so on. They've remained very stable throughout
our entire lifetimes. That's more or less the basis on which car prices have
been determined. The market for cars has grown substantially; it hasn't
declined.
You should perhaps spend less time poring over GDP figures
and more time talking to customers. In non-command economies,
their micro-economic decisions are what ultimately drives the
macro-economic figures.
I agree that microeconomics is badly overlooked and is poorly understood
comopared to macroeconomics. But first, you have to start with accurate
figures, or you're trying to theorize with junk data.
Ed Huntress