Topic8_Outsourcing&a - Growth Jobs Productivity& Outsourcing Long-Run Economic Growth Review LongFacts Growth Accounting Solow Model Solow Model

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Unformatted text preview: Growth, Jobs, Productivity & Outsourcing Long-Run Economic Growth Review LongFacts, Growth Accounting, Solow Model, Solow Model with Productivity Growth (Technological Progress), Policies to Promote Growth, Outsourcing • Higher standard of living comes from higher paying jobs • The formal growth model says to get higher wages you add capital educate the workforce make technological innovations … Topic 8 (Text: Chapter 6; Pres Topics #3, & #4) 1 2 Growth, Jobs, Productivity & Outsourcing Growth, Jobs, Productivity & Outsourcing • Higher paying jobs come from • So, the process of innovation often involves Better technology to produce known goods & services Improving known goods & services New goods & services that are highly valued • The aim of corporations is not to improve the standard of living of its workers or the economy Rather, it is to enrich its shareholders 3 Shedding workers and replacing them with “machines” Moving labor-intensive production to lower cost locations (outsourcing) This process improves the standards of living in the receiving locations • And somehow(?) employment! we still have full And we will continue to have full employment Always subject to business cycles fluctuations 4 Growth, Jobs, Productivity & Outsourcing Growth, Jobs, Productivity & Outsourcing • Retaining “existing jobs” that are not highvalue is the best way to insure growth stagnation! • If we retained the farming jobs that existed 50 years ago, we’d be as poor now as we were then Another term for it is protectionism Many of Western culture’s “isms” Protectionism is a bad word among free-market economists precisely because it results in slowing growth and a stagnating economy Around the world, poverty is correlated with the proportion of the labor force in farming • Outsourced jobs are outsourced because someone elsewhere is willing and can to do it for less At this stage of development it means those jobs have less value 5 6 Growth, Jobs, Productivity & Outsourcing Growth, Jobs, Productivity & Outsourcing • The cycle goes something like this: • Economic growth has a critical role in the social structure of the economy Economic pressures cause labor force replacement and outsourcing Economic pressures cause innovation This innovation creates new higher-valued jobs The outsourced jobs create a higher standard of living where they go Mexico, India, China, Taiwan, etc. This helps with “convergence” The Chinese model The U.S. model The European model (not everywhere in Europe) • It is not ordained from on high that the U.S., Western Europe and Japan will “lead” the world economy and spread jobs and wealth around • Social cost of this process? 7 A Few Thoughts on Saving 8 A Few Thoughts on Saving • What is the “engine of prosperity?” In mature economies it is a combination of TFP AND investment Recall equilibrium k keeps growing! If we save less, per-capita GDP is permanently less but still growing • If the U.S. saves less than its investment, foreign investment will supply the gap Under ideal conditions real rates are equalized across countries with open capital markets Low savings means that a portion of the ownership of capital (and its income) accrues to foreign investors • Saving is neither a moral obligation nor a human virtue • “Too low” or “too high” is not a matter of taste of the analyst or comparison with the past or with other countries • Rational analysis requires that we ask if there are distortions of some sort that make savings higher or lower than optimal 9 A Few Thoughts on Saving 10 A Few Thoughts on Saving • Optimal savings depend on • Some well-understood distortions: Preferences You may prefer to consume now rather than later Tax rates and double taxation of capital Social security Wealth If you are plenty wealthy why would you save a lot? To individuals it looks like saving Age • Tastes can “explain” everything so that is not an helpful explanation, economists assume that people’s tastes in such matters is the same, and try to explain differences by differing economic incentives Various distortions in the economy will result in different behaviors 11 Provides income during retirement For the economy as a whole it is only an income transfer with no corresponding investment The vilified individual retirement accounts are supposed to fix this distortion 12 ...
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This note was uploaded on 03/02/2010 for the course BUAD 350 taught by Professor Safarzadeh during the Spring '07 term at USC.

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