We begin this chapter with five stories from around the world.
The following is a BBC report on Polish immigration to the United Kingdom.
If there was ever any doubt that the UK is in the grips of an extraordinary revolution, then hunt out the migrant worker recruitment fairs that are starting to spring up.
Last month, thousands of young Polish workers turned up at the third recruitment fair hosted by Polish Express, the London-based newspaper for the diaspora, […]
As they queued to enter the hall that was filled to its legal safety capacity, they scribbled away at resumes, going over their pitch time and time again.
Most were in their mid-20s. Some had only recently arrived, having stuffed a few belongings into a backpack, bought a one-way no-frills airline ticket. […]
[A] willingness to do jobs that employers say British workers don’t want, was at the heart of the boom, said Bob Owen of Polcat, a Doncaster safety training firm targeting the Polish employees market.
“I must admit it, I have never seen a workforce like the Poles,” said Mr Owen. “They want to work, you can see it in their eyes. But here’s the thing—they’re not in competition with the British workforce—they are finding ways of fulfilling a need that just wasn’t being met and that’s why they are being welcomed.”
[…]See Dominic Casiani, “So You’re Polish and You Want a Job,” BBC News, September 25, 2006, accessed June 28, 2011, http://news.bbc.co.uk/1/hi/uk/5376602.stm.
Figure 20.1 is a screenshot from a Dubai government website that promotes business and tourism in Dubai.See “Dubai for Business,” Government of Dubai: Department of Tourism and Commerce Marketing, accessed July 27, 2011, http://www.dubaitourism.ae/definitely-dubai/dubai-business. It details many different ways in which Dubai is a desirable place for businesses to locate. For example, the website contains the following:
Figure 20.1
Dubai offers incoming business all the advantages of a highly developed economy. Its infrastructure and services match the highest international standards, facilitating efficiency, quality, and service. Among the benefits are:
The website goes on to talk about benefits such as the absence of corporate or income taxes, the absence of trade barriers, competitive labor and energy costs, and so on.
The following is an extract from the Taipei Times, April 9, 2007.
Compal Electronics Inc, the world’s second-largest laptop contract computer maker, is considering building a new factory in Vietnam.
Compal could join the growing number of Taiwanese electronic companies investing in Vietnam—such as component maker Hon Hai Precision Industry Co—in pursuit of more cost-effective manufacturing sites outside China.
[…]
Compal forecast last month that its shipments of notebook computers would expand around 38 percent to 20 million units this year, from 14.5 million units last year. The company currently makes 24 million computers a year at its factories in Kunshan, China.
Compal, which supplies computers to Dell Inc and other big brands, could lack the capacity to match customers’ demand next year if its shipments increase any faster,…
Lower wages and better preferential tax breaks promised by the Vietnamese government could be prime factors for choosing Vietnam, Compal chairman Rock Hsu said earlier this year.
[…]See “Compal Eyes Vietnam for Factory, Taipei Times, April 9, 2007, accessed June 28, 2011, http://www.taipeitimes.com/News/biz/print/2007/04/09/2003355949. We have corrected a minor grammatical error in the article.
In Niger, West Africa, the World Bank is funding a $300 million project to improve education: “The Basic Education Project for Niger’s objectives are: (i) to increase enrollment and completion in basic education programs and (ii) to improve management at all levels by improving the use of existing resources, focusing on rural areas to achieve greater equity and poverty reduction in the medium to long term.”For more details, see World Bank, “Basic Education Project” World Bank, accessed June 28, 2011, http://web.worldbank.org/external/projects/main?page PK=64283627&piPK=73230&theSitePK=40941&menuPK=228424&Projectid=P061209. The World Bank website explains that the goals of the project are to improve access to primary education (including adult literacy), improve the quality of primary and secondary education, and improve the management capability of the Ministry of Education.
President Obama recently established the President’s Council on Jobs and Competitiveness, which is charged, among other things, with reporting “directly to the President on the design, implementation, and evaluation of policies to promote the growth of the American economy, enhance the skills and education of Americans, maintain a stable and sound financial and banking system, create stable jobs for American workers, and improve the long term prosperity and competitiveness of the American people.”See “President’s Council on Jobs and Competitiveness: About the Council,” accessed July 27, 2011, http://www.whitehouse.gov/administration/advisory-boards/jobs-council/about. In his concern with competitiveness, President Obama follows directly in the footsteps of President George W. Bush, who, in 2006, established the American Competitiveness Initiative to Encourage American Innovation and Strengthen Our Nation’s Ability to Compete in the Global Economy.George W. Bush, “State of the Union: American Competitiveness Initiative,” White House Office of Communications, January 31, 2006, accessed June 28, 2011, http://www2.ed.gov/about/inits/ed/competitiveness/sou-competitiveness.pdf.
At first reading, these five stories seem to have little to do with each other. There is no obvious connection between the actions of the World Bank in Niger and Taiwanese computer manufacturers in Vietnam or between the marketing of Dubai and the arrival of Polish migrants in the United Kingdom. Yet they are indeed all connected. Think for a moment about the consequences of the following:
Of course, each story has many different implications. But they have something fundamental in common: every single one of them will increase the real gross domestic product (real GDP) of the country in question. They all therefore shed light on one of the most fundamental questions in macroeconomics:
What determines a country’s real GDP?
As we tackle this question, we will see that it is indeed connected to our stories of Dubai, the United Kingdom, Niger, Vietnam, and the United States.
Our stories have something else in common as well. In each case, they concern not only the country in isolation but also how it interacts with the rest of the world. The funds for Niger’s education program are coming from other countries (via the World Bank). The US policy is designed to ensure that America is “leading the global competition that will determine our success in the 21st century.”“Obama Presses for an Economy in ‘Overdrive’: Will Jobs Soon Follow?,” PBS NewsHour, January 21, 2011, accessed August 22, 2011, http://www.pbs.org/newshour/bb/business/jan-june11/obamabusiness_01-21.html. Dubai is trying to attract investment from other countries. The workers in the United Kingdom are coming from Poland. The factory in Vietnam is being built so that a Taiwanese company can supply other manufacturers throughout the world.
Real GDP is the broadest measure that we have of the amount of economic activity in an economy. In this chapter, we investigate the supply of real GDP in an economy. Firms in an economy create goods and services by transforming inputs into outputs. For example, think about the manufacture of a pizza. It begins with a recipe—a set of instructions. A chef following this recipe might require 30 minutes of labor time to make the dough and assemble the toppings and then might need 15 minutes use of a pizza oven to cook the pizza. The inputs here are as follows: the pizza oven, the labor time, the skills of the chef, and the recipe. Given 15 minutes of capital time, 30 minutes of labor time, a skilled chef, and the instructions, we can make one pizza.
In macroeconomics, we work with the analogous idea that explains how the total production in an economy depends on the available inputs. We first explain the relationship between the available inputs in the economy and the amount of real GDP that the economy can produce. Then we look at all the individual inputs in turn. If we can explain what determines the amount of each input in an economy and if we know the link from inputs to real GDP, then we can determine the level of real GDP. Finally, we look at a technique that allows us to quantify the relationship between inputs and output. Specifically, we look at how increases in different inputs translate into increases in overall GDP. Using this technique, we can see which inputs are particularly important.
