The same reasoning explains why wage levels differ so dramatically across the world. Look at Table l~l on page 246, which gives the average wages plus benefits in manufacturing industries for eight countries. Wages are 10 times higher in the United States than in Mexico, 3 times higher in Japan than in South Korea, and more than 50 times higher in Germany than in Sri Lanka.
What accounts for the enormous differences? It’s not that governments in Sri Lanka and Mexico are suppressing wage increases, though government policies do have some impact on the minimum wage and other aspects of the labor market. Rather, real wages differ among countries primarily because of the op- . eration of .the supply and demand for labor. Look at Figure 1~3. Suppose that Figure 1~3(a) represents the state of affairs in the United States while Figure 1~3(b) describes Mexico, In Figure 1~3(a), the supply of U.S. workers is shown by the supply curve, This analysis can also help explain why wage5 have risen rapidly in East Asian regions such as Hong Kong, South Korea, and Taiwan.
These economies are devoting a sizable ‘share of their outputs to educating their populations, investing in new capital goods, and importing the latest productive technologies. As a result, real wages have doubled over the last 20 years in these countries, while wages have stagnated in relatively closed .countries which invest.less in education, public health, and tangible capital.
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