Suppose that a car company employs 100,000 people in an expensive nation, and they get paid about $100,000/year each – or a total of $10B/year. There are all kinds of other costs besides labor, but this is the biggest one.
The cars cost $50K in this situation. This car company has total costs of $66.66B/year, and their total revenue is $74.1B/year. They sell 1.481M cars/year. Their profit margins are 11.1%.
Now, the cars are now manufactured in another lower-cost nation. They employ 100,000 people, and the workers get paid $10K/year, for a total of $1B/year. There are all kinds of other costs, of course, like shipping. )
Labor is only 15% the total cost of a car.
Now, their total costs are $58,666M/year, and their total revenue can still be $74.1B/year, and they still sell 1.481M cars/year. Their profit margins are now 26.3%.
A few things can happen here:
* The car company can choose to keep the prices the same at $50K for a car, but they can also give every displaced worker – all 100,000 of them – an annual stipend of $80K/year per displaced worker. By doing so, their profit margins will still be 11.1%, but over time, due to death of the ex-workers, this profit margin would slowly go up to 26.3%.
* Another thing is that while the displaced worker receives 80% of their wages, as they die out at around age 80, which would start to happen in 40 years using my model – the same car company can also start lowering the price of the car commensurate with the lower accounts payable over time. So when all 100% of the displaced workers die out, the cars will now be costing $44,643.
I can see how this is extremely good, but I don't see why it's not implemented, other than it would take some time for the cars to get cheaper – like it would take about 40 years to get cheaper by around 12% – or about 0.3%/year on average (slow at first, but rapidly later on).
Why don't we have protection like this for displaced workers, and moreover, why can't a more centrally-planned outsourcing occur like this?
Why isn't cheaper prices for many with higher unemployment not better than lower unemployment but higher prices for many?
byu/throwRA_157079633 inAskEconomics
Posted by throwRA_157079633