The change in job sectors relative to Wealth

I was preparing for the debate tomorrow between the College Republicans and the College Democrats, as I was drafted to speak on the economic issues. The question was brought up; Does NAFTA help or hurt the U.S. Job Market? When I came across my old notes for free trade, I found a World Bank Report.

People’s jobs change as they get wealthier…

If we divide the types of jobs between Agriculture, Industrial, and Service, we see a large change as in countries incomes and percentage of GDP.

As a percent of GDP

Low-income countries

Middle-income countries

High-income countries

Agriculture

25%

11%

2%

Industry

38%

35%

32%

Services

35%

52%

66%

This shows that as a country gets richer the Agricultural sector declines fast, Industrial sector slowly declines, and the Services sector shoots up fast.

Why does this happened?

Let’s look at a simple model: When man is first on earth, his first priority was to create food. He then began to create more food than he could eat so he sold it to others. These other people no longer needed to farm because it was cheaper for them to just buy it from the first guy. He will then find some other good that he can create that would be worthy to the farmer to trade for food. Let’s say shoes. He would start his factory and hire workers and now they would be paid (with a current system set up) and they can buy shoes or food. As there will be enough shoes and food in the market, people will innovate and make other products. When all of that is said and done, people will demand more services and there will be more people in general. That means more doctors, lawyers, hairstylists, entertainers, and many other things.

Innovation is a big part of this. Farmers will have better tools and will need less people and will be able to expand output and lower the price.

Free Trade acts like innovation. Instead of finding a piece of machinery to make a car, we find that people in Mexico can make it faster and cheaper.

Trade and comparative advantages between countries have also caused this.

It has allowed us to work it higher skilled jobs, so that we don’t have to work in shoe shops like our parents and grandparents, and they didn’t have to work on the farmer like their parents and grandparents.

As wealth goes up, our jobs move into the Services sector. There will always be a need for industry and agriculture but I would say this change has been very positive.

~PCCapitalist

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