Question

Discuss the current U.S. labor situation as it relates to capital cost, productivity, and outsourcing and the new tariff imposed on imported steel. Relate your discussion to productivity, cost of labor, technology. Reference to the relative cost of labor compared to capital must be explicitly explained.

Answer 1

US Labor & Tariff on Steel

The US labor share of income is declining to the GDP as like many of the developed nations. The GDP paid out of in salaries, wages etc. are declining and the share of capital is increasing in these years over decades. The capital abundance of the country has led to a fall in demand for the less intensive factor labor due to technological development and the type of production. The US economy faced an increase in the number of labor force from the year 2000 and also the wages and returns for the factor was at a level of stagnant. Minimum wages showed a very less change to the two decades. The effective replacement of capital and the international trade policies and theories stood with the side of capital. The difference in productivity between a unit of capital and that of labor forced the industries to substitute the cheaper factor to the costlier.

The ability of China to export cheaper steels to US forced the country to impose an import tariff on the commodity. The domestic industries find it difficult to compete with the price that China exports steel to US. Much cheaper capital and labor in China could help them export steel than the price which the domestic industries in US charge. Technological development and free movement of capital and labor increased the efficiency of China to produce cheaper commodities which are intense in both the capital and labor factors. The less relative cost of labor and capital in China than US helps them to produce and export steel with increased productivity and less cost.