Tuesday, July 10, 2007

Globalization, Labor, and Detroit East

Once again, there's an interesting article in The Wall Street Journal that can be used to illustrate an abundance of topics. On the front page the Tuesday, July 10, 2007 issue is a story on the Shortage of Skilled Workers in Eastern Europe (subscription required). As I read it, I began ticking off topics that this could prove useful in illustrating.

The most obvious (to me at least) is how markets impact on prices -- in this case the price of skilled labor. The auto plants in Bratislava (now referred to as Detroit East because of the large number of auto plants) are having trouble finding and keeping high-skilled workers. Many of the existing workers are moving to Western Europe, which creates labor shortages, which puts upward pressure on wages (and prices). This raises living standards, but it also can translate to inflationary pressures. This last item can attract the attention of central bankers in these countries.

I also remembered my early economic lessons. When we studied the factors of production, labor was of particular interest because of its "unique characteristics", among which was "immobility." This referred to the fact that, all things being equal, people prefer not to move. Parts of this story would seem to contradict this. The willingness of people to move for a job would seem, at the surface, to be a factor in globalization. One can look at issues related to immigration for support here. But the story also gave an example to support the "immobility" characteristic. The story cited the plight of a Polish factory worker who knew there were jobs in another town, but chose not to move for economic and personal reasons. This topic alone can provide a lot of discussion with students.

Finally, if one wants to link to the topic of "offshoring", there's a tie-in. Towards the end of the story, the authors mention that if labor shortages grow, some employers may look elsewhere. The combination of lack of skilled workers (due to emigration and an aging population) and the resultant rising wages have firms looking to move production to other countries - some in Eastern Europe, like Ukraine and Bulgaria - and some elsewhere, like Morocco. Still others are importing workers from Central Asia. And the changes in cultures that come as social groups mix are one more aspect of an increasingly global economy.

As always, your comments are most welcome.

Posted by TSchilling at July 10, 2007 10:59 AM

You never know where you will find an economics lesson. Your discussion of "immobility" reminded me of a Dear Abby column, where a wife writes seeking advise about moving. The husband can find work if they move, but family ties
make the move difficult. It is a good anecdotal illustration of immobility.

Posted by: Amanda G. at July 10, 2007 11:57 AM

If an employer has to pay more to his employee, how is that inflationary? The employer has less money that he can spend on other goods and services if he spends more on his employees. An increase in the relative price of auto workers in no way translates into an increase in the general price level.

This sentence speaks volumes, however. "This last item can attract the attention of central bankers in these countries." Here is the cause of your inflation! The central bankers attempt to accomodate a rise in the relative price of auto workers by monetary expansion is the true cause of inflation. Cost-push theories of inflation are bunk. The source of inflation is the Central Bank.

Posted by: Tom at July 10, 2007 2:09 PM

No comments: