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It doesn't take a genius to understand the difference between labor costs, wages and profit. Clearly, Saxby is a long way from genius territory.<br> <br> When we talk about labor costs, we're talking about all costs of labor divided by man hours. Let's take a manufacturer who has been in business for sixty years, and pays a lot of money for retiree benefits and pensions. Next door there's another manufacturer who just opened. They both pay wages of $10/hour, but the retiree costs raise the established company's labor cost to $14/hour.<br> <br> Or consider a manufacturer opening a plant in Detroit, and another opening across the river in Windsor, Ontario. They both pay $10/hour, but the Canadian workers are covered by national health plan and the Detroit workers get employer-provided insurance at $1.50/hour. Wages are the same, but the Detroit company's labor costs are higher.<br> <br> Let's go back to that first plant. It's experienced workforce is very efficient, and it has invested in state-of-the-art equipment. The new factory next door has tried to open "on the cheap", has less experienced workers, and requires manual assembly for functions where the established factory uses robotics. As a result the established factory produces a widget in 20 labor hours, and the new company produces a widget in 28 labor hours. Despite the fact that the established factory has a higher labor cost, it has the same profit as the new factory. Now let's assume that its legacy costs are lower - $2/labor hour instead of $4. Despite paying $12/hour for labor as compared to the new factory's $10/hour, the established factory is considerably more profitable.<br> <br> Doesn't anybody read Thomas Sowell?
By Aaron

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