Bill Wheaton's Comments on Wage and Productivity

Both are correct:

1). Individual wages are based on the value of a person's productivity. That would be the price of what he or she is producing times their marginal product. To a certain extent, barbers in Ghana receive less because the entire price level there is lower - not so much because each is less productive than their Japanese counterpart.

2). Now of course there is a simultaneity - prices are lower because wages are lower....

3). Average wages are clearly highly correlated with average productivity - and average productivity differs between countries because of very large differences in education levels, average skill levels, and average capital/labor ratios.

So why is a Barber in Ghana paid less? In the global traded goods market, Countries with little average human and physical capital produce and trade low value goods needing little skill or machinery. That leads to lower wages for those in those industries. Then the service industries supporting these export workers, have to have much lower prices (for a haircut). The barber is paid less for this reason - not because he is physically less proficient at giving haircuts.

I Trust the recovery in Japan over the last few years is benefiting you and the other CRE alumni.

Bill