Bytes of the Apple

There are some US companies that are doing extremely well. In 2002, Apple’s market capitalization was a couple of billion dollars. Now a couple of billion dollars is a round off error in its over $300B market capitalization. In the consumer market, Apple has such cachet that it can ask for an receive a premium for the Apple logo. Bloomberg predicts that Apple revenue may grow by 50% next year.

On the other hand, most companies are not doing as well. As unemployment hovers at about 9%, the typical response is to erect barriers to keep jobs in the US. That was certainly the motivation of the Smoot-Hawley Act of 1930 that exacerbated and prolonged the Great Depression by curtailing international trade with high tariffs.

Since that experience it has been conventional economic wisdom that free trade increases the wealth of both trading partners. Nonetheless, there is concern about how many jobs are being out-sourced overseas. A recent study published in the International Journal of Commerce and Economics by Linden et al.
carefully traced the jobs and their valued added for Apple’s Ipod.

The study found that the production of the Ipod yielded nearly twice as many jobs overseas as in the US. However, the bulk of the value-added and consequently the wages went to Americans. Moreover, the bulk of the salaries in the US went to engineers and managers. This does not count the value to US investors and to US consumers.

In other words, the jobs that went overseas where largely low-skilled manufacturing jobs that could not support an American worker salary. Moreover, many of these low-skilled jobs will soon be automated. The out sourcing of jobs to low-wage countries is typically the step right before automation.

As production becomes more efficient, fewer more highly skilled workers are used. It takes far fewer workers to produce a car than it used to. Indeed, since 1950 manufacturing production has accounted for a nearly constant 15% of the gross domestic product, while the number of workers in manufacturing has decreased by half from over 30% to less than 15%.

The problem is not out sourcing of jobs to other countries, the problem is that we do not have enough companies like Apple who make high quality products with Americans adding the highest value to the products.

It would be impossible to legislate more companies like Apple, but it would be foolish and all too easy to create trade barriers that would hobble such companies.

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