Japanese labor productivity is roughly the same as that of the United States in
ID: 1203647 • Letter: J
Question
Japanese labor productivity is roughly the same as that of the United States in the manufacturing sector (higher in some industries, lower in others), while the United States is still considerably more productive in the service sector. But most services are nontraded. Some analysts have argued that this poses a problem for the United States, because our comparative advantage lies in things that we cannot sell on world markets. Explain what might be wrong with this argument. How does the fact that many goods are nontraded affect the extent of possible gains from trade? Use this week’s lecture and assigned reading to inform your post. Respond to at least two of your classmates’ posts.
Japanese labor productivity is roughly the same as that of the United States in the manufacturing sector (higher in some industries, lower in others), while the United States is still considerably more productive in the service sector. But most services are nontraded. Some analysts have argued that this poses a problem for the United States, because our comparative advantage lies in things that we cannot sell on world markets. Explain what might be wrong with this argument. How does the fact that many goods are nontraded affect the extent of possible gains from trade? Use this week’s lecture and assigned reading to inform your post. Respond to at least two of your classmates’ posts.
Explanation / Answer
The problem with this argument is that it does not use all the information needed for determining comparative advantage in production. It is not enough to compare only service's unit labor requirements. If aLS < aLS*, Home labor is more efficient than foreign labor in services. While this demonstrates that the United States has an absolute advantage in services, this is neither a necessary nor a sufficient condition for determining comparative advantage. For this determination, the industry ratios (aLM and aLM*) are also required. The competitive advantage of any industry depends on both the relative productivities of the industries and the relative wages across industries.
The competitive advantage of any industry depends on both the relative productivities of theindustries and the relative wages across industries. So there are four aspects should be takeninto account before we reach conclusion: both the industries and service sectors of Japan andU.S., not just the two service sectors. So this statement does not bade on the reasonable logic
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