Below is a slightly – edited comment I posted on this post at Cafe Hayek:
Another way to think about it:
Why are the Boston Red Sox paying David Price $20 million a year when they could have me do the same job for 1/1000 the price?
The Red Sox would be crazy to hire me to be their ace starting pitcher, even given they could pay me so much less than what Price makes because I simply don’t have the productive value he does. My fastball tops out at 65 MPH; his is regularly in the mid-90’s. My walk-to-strike ratio and WHIP (walks/hits per Innings Pitched) would be through the roof. His are closer/below league average. In short, the Sox would be getting a poor deal if they signed me.
This is a key matter to keep in mind when discussing trade and low-wage workers competition in competition with high-wage workers. The argument that economic individuals will substitute lower-cost inputs for higher-cost inputs holds only if the two are comparable. The price of an input (in this particular case, labor) reflects the marginal value added and thus a lower-cost option (such as myself) is not necessarily a good, or even preferable, substitute to higher cost options (such as David Price).
It is for this reason that we’ve seen some manufacturing jobs go to China or Mexico over the years, but not many others. The jobs that have gone are mostly labor-intensive assembly-line work. In other words, something the foreign worker could do a comparable job for less cost. Conversely, the manufacturing jobs that have stayed are more capital-intensive precision work. In other words, something that the foreign workers could not do a comparable job for less cost. In fact, this is why (despite the ruinous predictions by anti-progress politicians like Sanders or Trump) globalization has made the world (including the developed world) far wealthier.