Wages Aren’t The Problem

By Matthew McMullan
Dec 02 2015 |
A culprit more likely than you’d guess: China’s yuan. | Photo by japanexperterna.se

It’s currency manipulation that has chased American jobs offshore.

Donald Trump, erstwhile beauty pageant promoter and currently a leading candidate for the GOP presidential nomination, is rarely at a loss for words. Ask him a question, and the man will give you a verbose answer. That’s exactly what happened when the moderators last month asked him what he would do about the minimum wage: Would Trump raise it?

“Taxes too high. Wages too high. We’re not gonna be able to compete against the world,” Trump told the audience.

This was followed in the days after by some breathless backtracking. It’s all about context, Trump told a television host. “We were talking about the minimum wage,” he said, “and they said ‘should we increase the minimum wage?’ And I’m saying that if we’re going to compete with other countries we can’t do that because the wages would be too high.” 

So let’s be clear: Donald Trump thinks American wages are a chief reason that American-based companies can’t match up with the foreign competition.

That’s wrong. In what will not be mistaken for a shocker, it’s not exorbitant wages that have pushed jobs offshore over the last 15 years. It’s exchange rates.

“The idea that high wages in the manufacturing industry are causing job losses is common, but incorrect,” says Robert Scott, EPI’s director of trade and manufacturing policy research.   

In a new report, Scott draws the line from the fall of U.S. manufacturing employment and the absence of a coordinated policy response to sustained currency manipulation by the Chinese government, not to mention its significant investments in key industries that have resulted in substantial industrial overcapacity. The U.S. steel industry is wrestling with that overcapacity right now.

For the skeptics, Scott points to Germany, home to some of the highest manufacturing wages in the world, which hasn’t seen its share of factory jobs slip over the same period of time. What does Germany also have? A “wide array of supply-side policies that benefit and support its manufacturing sector,” he notes in the study.  

For his part, Trump has been the most vocal presidential candidate in either party in noting how damaging currency manipulation has been to the American economy. With that in mind, his “blame high wages” episode last month is all the more strange.

Let’s hope he does a little more studying before he’s asked another question about wages in front of a live television camera.