Dear Sir,
I'm sorry to disturb you in your busy work, but I'm wondering if you could offer me your opinion as an economist. The point is this;
Is it completely off the mark to say that the overall wage level is determined by the average productivity of that economy?
In Japan, we were having this discussion on the net about the determinants of the wage level among countries. Some argued that this was determined by the absolute productivity level of each person and profession. Now, this is obviously not true. Barbers and bureaucrats in Japan do not get paid 20 times than Ghana because they are 20 times productive. Their productivity is quite similar, maybe twice produtive at the most.
So I pointed out that the overall wage level is determined by the AVERAGE productiity of the economy. And the factor that pushes up the average productivity is in large part the productivity of the manufacturing sector. Because Toyota and Sony and Nintendos have tens of thousands of times higher productivity than counterparts (or tradable goods manufacturers) in Ghana, they push up the average productivity significantly, and that translates into much higher oveall wages for occupations that are NOT too productive.
And of course, within the economy, the wage level for various occupations is determined by the supply and demand. If construction workers are in short supply, they will necessarily earn more (as they did in the bubble period). And within that constraint, the wage/earning will be determined by the productivity level. If I write twice as many books, I will earn twice as much. It's not perfect, but I thought it was not a bad way to understand the issue.
But at this point, an "economist" budged in, claiming that my argument was completely bogus and that no self respecting economist would have a clue as to what I'm talking about. His arguent is that all difference stems stems from the marginal productivity, and the difference simply comes from the fact that labor cannot move accross borders.
Now, while this is true, I thought this was implicit when we were comparing countries like Japan with Ghana. Marginal productivity is also included in my argment ("If I write twice.." part). So I wasn't sure what the fuss was about. But his next argument was mind boggling, where he argued that my logic cannot stand because there is no mechanism to transfer the high productivity of the manufacturing sector to the wages of barbers and bureaucrats.
I (and my friends) have argued that if one sector has higher productivity, they will earn more, which would allow them to pay more for similar goods and services in other (non-tradable) sectors, which would subsequently increase the income (and the wage) of other sectors. So there obviously is a mechanism. But he doesn't seem to think this is sufficient, which I don't know why. I think we're basically making the same argument but slicing it a bit differently. BUt he maintains that I am 100% wrong, and that he is 100% right.
So my question. The idea that the overall wage level is largely determinied by the average productivity of the economy ---- Does this seem completely clueless to a self respecting economist as yourself? Of course, many other conditions will come into play, but as an Econ 101 level description, am I completely off? I think that this is text book material, and that my opponent is a disgrace to economists everywhere, but obviously I'm being emotional, and maybe I actually am getting it wrong somewhere.
I'd very much appreciate it if you would enlighten me on this matter, when you have any spare time. Thank you in advance.
Best,
Hiroo Yamagata
Tokyo Japan/Ghana