The Mis-Protection of the American Worker

In the US, we have imposed several restrictions on employment conditions: minimum wage, health insurance, workman’s compensation insurance, and workplace safety.  In 1998, it was estimated that OSHA compliance was costing American industry $33 billion a year [1]; in that same year, OSHA also had an operating budget of $315 million.  If we adjust this to today’s dollars, the cost of OSHA is approximately $50 billion per year [2].  As of 2009, the Federal minimum wage is $7.25 per hour and there were 1.5 million workers earning this amount in 2013; several states have imposed minimum wages higher than this amount [3].  This is admittedly a small salary in the US (approximately $14,000 annually assuming a 40 hour work week).  And yet, it’s significantly higher than what employees in other nations get paid: the average hourly wage in Mexico is $5.5 per hour [4], and the average migrant worker in China currently earns $3.3 per hour [5].  In an extreme example, child labor is used to harvest most of the world’s chocolate [6].

These costs make the prospect of manufacturing in other nations a profitable proposition for large companies.  If a company manufactures a good that is durable enough to withstand the required transport, then it seems that profit can be made by having that good manufactured out of country.  There are other comparative advantages for manufacturing in the US (ease of communicating with english speaking workers for those employers that speak english, ease of lawsuit should a conflict arise).  And yet, it seems that these comparative advantages are not enough to prevent textile manufacturing, electronics manufacturing, and the steel industry from moving to China, India, Mexico, and elsewhere.  Since 1990, there has been a 70% reduction in US textile manufacturing and an 85% reduction in apparel production [7].  In 2012, US manufacturing was running a trade deficit of approximately half a trillion dollars  [7].  This corresponds, not surprisingly, to the implementation of the North American Free Trade Agreement (NAFTA), which made it cheaper for companies to produce their products out of country.

And so, the very good intentions of protecting the American employee have led to the secondary of consequence of leaving large segments of Americans unemployed.  Imagine what our employment rate would be if we had retained textile and electronics manufacturing in the US.

As a nation, we should decide what employment conditions are satisfactory for people.  If we’re comfortable paying people low wages, ignoring workplace safety, not supplying health insurance, and avoiding other requirements that are imposed in the US, then we should permit American workers to compete for jobs without those restrictions.

However, if we feel that those restrictions are required, then we should reduce the number of goods that we import from places that employ people without restrictions similar to those imposed in the US.  One way to transition into this state would be to impose tariffs on goods imported into the US from countries with more lax restrictions so that the price of the good required to make a profit would be greater than the price required if it had been manufactured in the US.  This, of course, would have the side effect of dramatically raising prices in the US.

[1]  James, Harvey S. “Estimating OSHA compliance costs.” Policy Sciences 31.4 (1998): 321-341.

[2]  http://data.bls.gov/cgi-bin/cpicalc.pl

[3]  http://www.huffingtonpost.com/2014/09/24/minimum-wage-increase-numbers_n_5868848.html

[4]  http://www.businessinsider.com/mexicans-get-paid-less-for-their-work-than-any-other-developed-country-2015-7

[5]  http://www.bloomberg.com/news/articles/2016-03-22/china-s-great-wage-boom-seen-subsiding-with-unemployment-rising

[6]  http://fortune.com/big-chocolate-child-labor/

[7]  Baily, Martin Neil, and Barry P. Bosworth. “US Manufacturing: Understanding Its Past and Its Potential Future.” The Journal of Economic Perspectives 28.1 (2014): 3-25.

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