Scott Sumner  

How to tell if you are a modern progressive

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Nationalists are not utilitari... Hummel on Lowenstein and the F...

Have you ever wondered if you are a progressive? I've come up with a two-part test. If you believe in both of the following propositions, then you qualify as a American progressive, circa 2016:

Proposition #1:
Free trade with low wage countries like Mexico steals lots of jobs from American workers. There is no way a Mexican-American worker paid $7.25/hour in El Paso can compete with an actual Mexican worker making $3.50/hour in Ciudad Juarez. NAFTA led to a giant sucking sound of jobs flowing south across the Rio Grande.

Proposition #2:
Free trade between Texas and California does not cost jobs. A Mexican-American worker making $15 hour in Fresno can easily compete with a Mexican-American worker making $7.25/hour in El Paso, because there are studies "proving" that lower minimum wages in one state do not steal jobs from neighboring states.

In other words, trade steals jobs when it occurs across international boundaries, but not when it occurs across domestic boundaries.

My own view is that trade never steals jobs. Instead, laws that push wages above equilibrium steal jobs (although the effect may be tiny for small increases.) Wages are lower in Mexico because productivity is lower. And that's partly because institutions in Mexico are worse than in the US. In contrast, institutions in El Paso are at least as good as in Fresno. Thus forcing wages in Fresno up to twice the level of El Paso, almost certainly will cost jobs. I believe in both Ricardian trade theory and neoclassical labor economics, with downward sloping demand for labor. But then I'm not a progressive.

PS. Astute readers will notice that my sarcastic comment about studies "proving" no impact from minimum wages did not accurately characterize those studies. That is correct. I am not describing those studies, I am describing how those studies have been interpreted by many American progressives (not all), circa 2016.

PPS. I predict that the very same progressives that rely on the Card and Krueger study finding no employment effects from minimum wage differentials in neighboring states, will eventually demand a higher national minimum wage to prevent an "unfair competition" in state minimum wage differentials.


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COMMENTS (25 to date)
Chuck writes:

Saying jobs can be stolen is implying employees own jobs rather than employers.

If I invite friends over to my house for a party, am I ceding ownership of my house to them?

maynardGkeynes writes:

Progressives are also missing something else. If they are looking for a free trade villain for Detroit, for example, it's not Mexico, Japan, or China, but the open-shop/union-unfriendly states of the South. The workers there have basically been-free riding on the UAW for decades, and seem very happy to keep doing so. But no progressive politician (or conservative, for that matter) is going to make that an issue, because they want to win votes in the South. You'd think, at the very least, the Mexican government would be screaming that at Trump, Sanders and Clinton.

Handle writes:

"...will eventually demand a higher national minimum wage to prevent an "unfair competition" in state minimum wage differentials."

That is what's behind the state laws. Big cities in both California and New York have the independent authority to set higher minimum wages. But New York City and San Francisco will lobby Albany and Sacramento, respectively, to force the regime across the whole state - regardless of wildly different economic circumstances - because of the fear of production moving just across the municipal boundary.

Moving out of state is harder for many businesses than moving out of the city.

JK Brown writes:
If I invite friends over to my house for a party, am I ceding ownership of my house to them?

Well, in some Progressive urban areas, if you let them stay at your house for to many nights, they do gain some resident rights should you try to make them leave.


But job "ownership" stems from the Marxist idea that the worker is the one adding all the value. Marxism ignores all the "old labor" that is in the capital. What are capital goods but the product of transformations by labor in an earlier period.

Dustin writes:

Brilliantly pithy couple of posts. Can further EconLog entries be delayed for a day or two to keep these at the top of the heap and so get the prominent attention they deserve?

James Hanley writes:

I often push my students to explain why borders matter by asking about trade between states, and even between municipalities. It's easy to get them to agree those borders don't matter, but really hard to get them to give up on the idea that national borders matter...but at least I can make them struggle to come up with an explanation why.

My favorite answer is some variation on "the Michigan auto worker ought to be less upset that a fellow American down in Mississippi got his job than that some furriner in Mexico got it."

Dustin writes:

James,

Strange how xenophobia is socially acceptable while other social-phobias are not.

I would've guessed that one holding these contradictory views on trade would justify it by believing that intranational competition somehow has more positive externalities.

Kevin Erdmann writes:

This is why the idea that trade goes to places where wages are rising, not where wages are low, is so important, and why the distinction between new capital and existing capital is so important. The progressives I know would find your argument here to be unpersuasive, because they see low wages as a competitive advantage. And, filtered through a worldview that believes economic outcomes are dominated by power relationships, so that low incomes beget low incomes (because they make you powerless), this basically ends up leading them to believe that corporations prefer poor institutions, because it allows them to take advantage of the locals' powerlessness. They end up seeing the poor local institutions themselves as a competitive advantage.
Since existing capital in those places certainly does tend to take advantage of local workers through those poor institutions, it is easy enough to presume that these erroneous points of view are verified by the evidence.

David R. Henderson writes:

@Dustin,
Brilliantly pithy couple of posts
I count one, not two, but I agree.
Can further EconLog entries be delayed for a day or two to keep these at the top of the heap and so get the prominent attention they deserve?
No. Think about why.

Nate F writes:

I'll bite. I don't favor a minimum wage but I can argue it. I don't favor trade restrictions but I can argue for them. It should be noted that not just progressives are anti trade - Trump supporters are as well (and my father, a lifelong Republican, is also anti trade).

1) Economics assumes that gains from trade can be shared with the "losers." People will lose jobs in a trade agreement. The assumption is that some of the gains are shared with the losers. If this is not happening, then those that lose out are doing the optimal strategy - being against free trade. The fix for this is subsidized job training, relocation assistance, etc that greases the wheels of the economy.

2) A minimum wage argument is that low skilled employers have market power. If you take a minimum wage McJob you more or less give up your ability to take on other jobs - because they schedule you at their whim and can cut or add hours with only a week's notice. Sure, you can not accept the deal - but if you are low skilled with no ability to relocate you are pretty much stuck with those jobs.

The truth is that when someone can't support themselves it is Americans, not Mexicans, that must bear the brunt of negative externalities. I favor EITC and transfer payments to ensure no one is poor enough to start robbing everyone (and have going to prison be an incentive to a better life).

Dustin writes:

David,

1) How to tell if you are a modern progressive
2) Nationalists are not utilitarians

"No. Think about why."

My comment was actually in jest and not at all a serious inquiry. I assume yours was as well, such a tart response is perfect. We all know the EconLog crew have far too many important things to say.

Scott Sumner writes:

Maynard and Handle, Good points.

Thanks Dustin.

Kevin, You said:

"The progressives I know would find your argument here to be unpersuasive, because they see low wages as a competitive advantage."

But that's missing my point. If they really did believe this then they'd also believe that minimum wage laws steal jobs.

David, Don't worry, I won't try to jump over you. :)

BTW, excellent post on Jeff Hummel.

Nate, I agree that EITC and relocation assistance is better than minimum wage laws and trade barriers.

BC writes:

Progressives also worry that robots will take everyone's jobs away but that, empirically, raising the minimum wage doesn't cause workers to be replaced by machines.

Dave M writes:

I consider myself some flavor of modern-day progressive, and I don't believe either statement. I think it's just wrong to model a job as a thing that can be moved or stolen. It'd be like stealing a marriage--it doesn't even parse.

I believe any change in trade policy can cause disruptions that in turn cause short-term unemployment for some individuals. I also believe there could be people who lose out long-term: their next jobs pay lower. I don't know how much that actually has happened for previous rounds of trade liberalization, but I would like to know.

Vipul Naik writes:

Bryan has blogged about this before here.

Scott Sumner writes:

Dave, Just to be clear, I'm not claiming that all progressives believe those two propositions; that's obviously not the case. Rather my suggestion is that if you do believe both propositions (and many do) you qualify as a progressive.

Yaakov writes:

You gave the answer in your post. Progressives are for forcing everybody to pay higher wages. The Mexicans by preventing people from purchasing their products, the Californians by a state minimum wage law and the people of Texas by a Federal minimum wage law which they will demand because of the unfair competition from Texas.

The Card and Krueger study compares activity in different states in a market which cannot move. People will not cross the border to Pennsylvania to eat lunch.

Noah writes:

Sounds like a strawman to me.

Scott Sumner writes:

Vipul, Thanks, Bryan's post is much better.

Yaakov, Yes, but the study was interpreted as applying to all industries.

Floccina writes:

Progressives are hard on saturists. They did protest Boeing moving jobs to South Carolina:
http://www.thegatewaypundit.com/2011/04/unbelievable-obama-nlrb-forces-boeing-to-build-plant-in-washington-not-south-carolina/

Bob Murphy writes:

Great post, Scott. I tweeted this to our mutual friend Noah Smith to ask what the progressive response would be, and he just kept making jokes and not answering the question (really). So I think this is a winner.

Joe writes:

I guess I'm a progressive by default. I don't believe in the minimum wage, I fully support free trade, but I just can't vote for anyone who doesn't support equal protection under the law for the LBGT community.

It just seems like equality under the law for all Americans trumps the (unfortunate) economic stupidity of the left.

Benjamin Cole writes:

Of course I agree with Scott Sumner.

Yet it annoys me that the topic is always the minimum wage, and not property zoning or the criminalization of push-cart vending.

The ridiculous fact in American cities is you are not allowed to be a retailer, unless you have or rent land that is zoned retail.

Not a topic. And how many millions of Americans are forced out of being retailers by this type of zoning and laws? What effect does the criminalization of push-cart vending have on job markets?.

Unlearning writes:

A key distinction here is between manufacturing and services. I'd expect most workers impacted by the minimum wage in California will be service workers with the type of jobs you can't outsource (e.g. barista).

OTOH, when people talk about foreign competition they're generally talking about manufacturing jobs, which provide a more direct source of competition. I would not be surprised if disparities in the minimum wage between states induced companies to employ more workers in the lower wage states.

Scott Sumner writes:

Thanks Bob.

Joe, Keep fighting for what you believe in. I like people who don't always line up on one side or the other.

Ben, Those are also good issues. I often complain about occupational licensing and zoning, as in my new MoneyIllusion post.

Unlearning, I would expect California to lose manufacturing and agricultural jobs, due to wage increases. And don't forget that manufacturers hire large numbers of service sector workers, such as janitors. Also, lots of services are traded goods, such as hotels, call centers, etc.

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