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Roberts replies to Critics

January 14, 2004

Re: Newton and Armentano

Asia has absolute advantage in the price of labor. The mobility of first world capital and technology means decline in employment in high value-added tradable goods and services in the first world. The displaced workers will drive down first world wages in non-traded goods and services.

A new general equilibrium will take a long time to be reached, because the excess supply of labor in China alone exceeds the size of the US population. The enormous overhang of excess supply on the labor market will keep wages low in China (and India) for a lengthy time, but first world wages will fall rapidly. Already there is a case in which an American firm has hired unemployed US software engineers at Indian wages.

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