Place Premium
A master welder's $200k-$300k TSMC offer in Arizona illustrates the place premium, and why that means skilled migration to the US is good.
In Taichung city, I had to leave Julie and Astra behind at the night market because I was feeling awfully sleepy. It was unfortunate I was so tired because the taxi driver was quite engaging, and since I was so tired I forgot to tip him a decent amount.
The part of the discussion with him that I found interesting was that as a master welder[1] he was offered a job at TSMC's Arizona facility for a number that at my conversion at the time ranked somewhere between $200k and $300k, which is an extraordinary sum of money. Unfortunately for him, he fell ill to a persistent illness and was unable to go, so he continued working in Taiwan for a sum of money that was a fifth of that.
This location premium always stuck with me. America has built such an engine of productivity that anyone on the critical path of that engine's functionality effectively gets a priority upgrade. I am no stranger to that. As a software engineer who worked in advertising, crypto, HFT, and AI I am only valuable because I enable other parts of the economy. And critically, my value is entirely due to how valuable the rest of the machine is that I can move. I'm a multiplier unit and so I was always paid a relatively large amount because of the thing I'm multiplying.
It turns out that this is a well-established concept in economics called the place premium[2]. Of course the place premium isn't an accident of geographical location. It is a property of the way some group of people is organized. FAANG companies[3] are similar. While they are probably the highest concentration of engineering talent, the real success of the organizations appear to be the structures they have that allow them to produce a statistical value of 1.5x out of everyone they effectively spend x on. Past some scale, the value of a strategy is less in the magnitude of its edge and more in its capacity.
Perhaps the unique thing about the United States is how much productivity is locked up in the country - there is both high edge and high capacity. The general theory is that increased numbers of residents will lead to decreased pay for workers and it's not untrue that sectors will see reduction[4] in gross wages, but the net effect of unlocked wealth in services is likely to be extraordinary.
Taking advantage of this current period of the world where US power is likely to be at its peak[5] and the place premium is high is just good sense. We should find a way to bring that welder here. We should find a way to build the things that will bring this nation prosperity, and we should do so fast. Why permit the superstars of other nations to languish in their imperfect machines. America has built the greatest prosperity machine in the history of Man, and workers of this sort are its fuel. It's time to pour gasoline on this fire.
Notes
[edit | edit source]- ↑ He was very proud of his skill - probably justifiably.
- ↑ Clemens, Michael A.; Montenegro, Claudio E.; Pritchett, Lant (2019-05-01). "The Place Premium: Bounding the Price Equivalent of Migration Barriers". The Review of Economics and Statistics. 101 (2): 201–213. doi:10.1162/rest_a_00776. ISSN 0034-6535.
- ↑ And the modern AI companies are FAANG-like now.
- ↑ The Stolper–Samuelson theorem is mentioned in A Splendid Exchange, one of my favourite books about the benefits of trade. It is obviously not the only factor. Sometimes growth sectors, like software, can see extraordinary expansion in immigration and foreign workers and offshore work and it simply leads to more growth. The usual arguments that workers are consumers etc. also apply.
- ↑ A mistaken treatment of "at its peak" is "we are greater than ever". The true realization is to understand it means "we will never be this great again".