It is Better to be Poor in a Rich Country

In response to a student's post about how low interest rates had benefited day laborers.

This highlights an important point about economics. When a country becomes wealthy, even those people who have not developed higher level skills benefit. This has to do with opportunity cost. Imagine that you can earn $100 per hour using your specialized skills. If instead of using those skills, you decide to go work in your yard, or clean your house, or work on building a new house for your family, you must forego $100 in income for every hour you spend doing those activities.

Thus, if you can get the same hour's work done by someone else less than $100, you are better off using your specialized skills for that hour and hiring someone else to do the yard work, clean the house or work on the construction of your family's new home.

Because of the supply and demand of lower skill workers, you will probably not have to pay anywhere near $100 per hour to hire people to do your yard work or clean your house, but notice that the more people in your community who are making high wages, the higher the demand their will be for lower skilled workers to do work for high income earners. In such an economy, not only are the top economic groups moving up, but in real terms the lower income groups move up, as well. (You may end up with a bigger relative divide, but still have the bottom and the top groups better off in real terms.)

This is one of the reasons why in a wealthy country you do not see extreme poverty, like you see in parts of Africa. If you compare skill sets, a lower skilled worker will be far better off in the United States than a worker with equivalent skills in Kenya. In the United States, you are considered poor if you live on less than $27 per day. http://www.census.gov/hhes/poverty/threshld/thresh04.html In Kenya you are poor if you live on less than $1 per day.

		December 10, 2005 *It is Better to be Poor in a Rich Country*
	In response to a student's post about how low interest rates had benefited day laborers. This highlights an important point about economics. When a country becomes wealthy, even those people who have not developed higher level skills benefit. This has to do with opportunity cost. Imagine that you can earn $100 per hour using your specialized skills. If instead of using those skills, you decide to go work in your yard, or clean your house, or work on building a new house for your family, you must forego $100 in income for every hour you spend doing those activities. Thus, if you can get the same hour's work done by someone else less than $100, you are better off using your specialized skills for that hour and hiring someone else to do the yard work, clean the house or work on the construction of your family's new home. Because of the supply and demand of lower skill workers, you will probably not have to pay anywhere near $100 per hour to hire people to do your yard work or clean your house, but notice that the more people in your community who are making high wages, the higher the demand their will be for lower skilled workers to do work for high income earners. In such an economy, not only are the top economic groups moving up, but in real terms the lower income groups move up, as well. (You may end up with a bigger relative divide, but still have the bottom and the top groups better off in real terms.) This is one of the reasons why in a wealthy country you do not see extreme poverty, like you see in parts of Africa. If you compare skill sets, a lower skilled worker will be far better off in the United States than a worker with equivalent skills in Kenya. In the United States, you are considered poor if you live on less than $27 per day. http://www.census.gov/hhes/poverty/threshld/thresh04.html In Kenya you are poor if you live on less than $1 per day.