Does it matter where a start-up ends up? One new energy efficient light bulb was developed in Florida, its inventor lives in Florida, and the bulbs are assembled in Florida. Soon to be sold at Home Depot, however, the state-of-the-art LED bulb is destined for a manufacturing home in Mexico or China.
You know why. In Mexico and China, wages are a fraction of U.S. pay and firms receive financial incentives when they relocate. Although the U.S. can offer political stability, easy market access, an efficient transportation network, and a skilled work force, the low cost abroad is just too alluring. Perhaps, the most compelling advantage of a U.S. factory is the continuing innovation that an educated work force can deliver.
Everyone is saying that start-ups are a key source of new jobs. For manufacturing, though, the jobs might not stay in the U.S.
The Economic Lesson
19th century economist David Ricardo’s principle of comparative advantage says that worldwide productivity increases when nations specialize and export the good or service for which they sacrifice the least to make.
As economists, should we be pleased that the jobs are going to their most efficient home?