EECS 1520 Lecture 25: EECS 1520 Lecture 25 Notes
21 Jun 2018
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EECS 1520 Lecture 25 Notes
Introduction
Cost of Labor
The cost of labor varies substantially among countries.
Many of China’s workers earn wages of less than $300 per month, so it is not surprising
that China’s firms commonly make products that require manual labor—at a much
lower cost than most countries in Europe and North America.
Within Europe, wages of Eastern European countries tend to be much lower than wages
of Western European countries.
Firms in countries where labor costs are low typically have an advantage when
competing globally, especially in labor-intensive industries.
Inflation
If a country’s inflation rate increases relative to the countries with which it trades, then
its current account should decrease, other things being equal.
Consumers and corporations in that country will most likely purchase more goods
overseas (in response to high local inflation), and the country’s exports to other
countries will decline.
However, inflation may have a limited effect on the balance of trade between some
countries, as when the typical wage rate in one country is more than 10 times the
typical wage rate in the other country.
National Income
If a country’s income level (national income) increases by a higher percentage than
those of other countries, then its current account should decrease, other things being
equal.
As the real income level (adjusted for inflation) rises, so does consumption of goods.
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Document Summary
The cost of labor varies substantially among countries. If a country"s inflation rate increases relative to the countries with which it trades, then its current account should decrease, other things being equal. If a country"s income level (national income) increases by a higher percentage than those of other countries, then its current account should decrease, other things being equal. As the real income level (adjusted for inflation) rises, so does consumption of goods. A percentage of that increase in consumption will most likely reflect an increased demand for foreign goods. China"s workers earn wages of less than per month, so it is not surprising that. China"s firms commonly make products that require manual labor at a much lower cost than most countries in europe and north america. Within europe, wages of eastern european countries tend to be much lower than wages of western european countries.
