Robert J. Gordon's Comments on Wage and Productivity

Dear Hiroo,

You are completely correct. What you are talking about is sometimes called "Baumol's disease". Because labor mobility WITHIN a country like Japan will keep wages across occupations growing at roughly the same rate, this means that those industries with slow productivity growth (government, barbers) will have rapid growth in RELATIVE prices and those with rapid prodcutivity growth (autos but more specially electronic goods and computers) will have falling relative prices and often falling relative prices.

Thus you are right. Everyone's wage is determined by the economy's average productivity, not by the productivity of any single job. This is subject to the qualification that wages of all workers do not rise at the same rate, and in particular in the U. S. we have had a big increase in the premium for high-skilled workers relative to unskilled workers. To see some of the explanations, see my new paper on my web site (google "Robert J. Gordon") on Unresolved issues in the Rise of Inequality.

Also, you are correct that labor IMMOBILITY explains why wages in the US and Japan can stay many multiples of the wage in ghana forever. If there were a massive migration from Ghana to the US, it would tend to drive down unskilled wages in the US without necessarily driving down skilled wages.

I hope this is an adequate answer to your excellent question.

RJG