Saturday, April 24, 2004

Yesterday over at Angry Bear, Kash sat bemused at how "extremely unusual" the big jump in US corporate profits is in comparison to the tiny bump up in US wages over the course of the "recovery". Why so unusual?
Typically we would expect worker to be paid their marginal product � as they become more productive, they should be able to demand (and firms should be able to afford) higher wages.
This is pure liberal economic mythmaking. Let's let reality have a shot instead.



The relationship between manufacturing productivity and manufacturing wages in Mexico over the last ten years suggests a quite different world. Productivity has shot up thanks to NAFTA-spurred investment in the maquiladora sector of northern Mexico while wages have been stagnant at best. The early 1990s plunge is mostly due to the peso crash, but nine years later real wages still haven't recovered to their pre-NAFTA levels, much less risen. "Marginal product" has nothing to do with it. The power of capital versus the power of labor is the heart of the story. US and Asian factory owners in Mexico can capture virtually all the gains from productivity advances thanks to their stranglehold on capital as well as the global reserve army of the unemployed both in Mexico and elsewhere (especially China).

Thanks to Sandra Polaski's chapter from the Carnegie Endowment report on NAFTA, NAFTA's Promise and Reality, for the table.

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