This post in the NY Times was fascinating to me, as this subject matter is one of the pet peeves in economic mantra (dogma) I've held for a long time. The long held theory goes just increase trade and everyone will be handed unicorns and butterflies. I've argued it might be better for mankind in terms of leveling living standards across country borders but it certainly is not "great" for everyone. While globalization has brought cheaper goods to the U.S., it has come at the cost of many jobs. And for many still working it has greatly pressured their wages – there is simply no argument to this. We now have a few decades of data. I have long argued that the middle class of emerging markets would enjoy a lifestyle upgrade, while many in the middle class of developed markets would see a downgrade. (I've called it labor wage arbitrage) [Dec 8, 2007: Do the Bottom 80% of Americans Stand a Chance?] That was hidden in the U.S. for half a decade by the housing bubble but it is apparent now…. and a large reason this economy is not reviving as it would normally do. The demand function in the economy is slack as many of the middle class no longer enjoy the same wages (or for that matter jobs of any sort) that they otherwise would. Once the labor wage arbitrage became undeniable defenders of the globalization crusade then argued "yes but we'll be able to sell into the new emerging markets and that will create a ton of jobs to offset what was lost." That is also hooey – you will see that in some of the data below. A lot of companies that sell into local markets also employ in those same markets – why would they hire high priced Americans?
Of course technological automation is PART of the reason as well – we can do much more with less, but that is only a partial explanation. [Mar 28, 2011: Productivity - Wo(man) vs Machine] There are some good studies cited in the post so for those who are interested in the subject it's a good place to start delving into reality. It is good that we are past the point of denial but as I've written the past 5 years, there is really no getting the genie back into the bottle. A world with hundreds of millions of new laborers – many dirt cheap – has shaken the landscape and what was once dismissed just as affecting blue collar workers, has now reached all sorts of employment: finance, law, accounting, etc. In fact the only key drivers of employment in the U.S. the past decade have been healthcare and education which are difficult to outsource. It's not coincidence. (this chart is three-four years old at this time but you get this picture)
- In “The Evolving Structure of the American Economy and the Employment Challenge,” the Nobel-winning economist Michael Spence looked at job growth from 1990 to 2008 in sectors of the United States economy. He found almost no net job growth in sectors, like manufacturing, in which global trade played a large role. Nearly all of the net gains occurred in sectors in which trade plays a minor role. Government and health care, in which trade plays almost no role, accounted for more than 40 percent of all new jobs.
- David Autor, David Dorn and Gordon Hanson looked at regions in the United States where companies are competing most directly with China. From 1990 to 2007, they found that regions that faced growing exposure to Chinese competition had higher unemployment, lower labor-force participation and lower wages than might otherwise be expected. And the effects grew over that period. In 1991, just 2.9 percent of United States manufacturing imports came from low-wage countries; by 2007, that had risen to nearly 12 percent, mostly from China.
- In the Council on Foreign Relations Task Force on U.S. Trade and Investment Policy, my colleague Matthew Slaughter looked at employment at multinational companies with headquarters in the United States, companies that account for roughly 60 percent of American exports and imports. From 1989 to 1999, those companies created 4.4 million jobs in the United States and 2.7 million jobs at their foreign affiliates overseas. From 1999 to 2009, however, those same companies eliminated a net of nearly 3 million jobs in the United States while adding another 2.4 million jobs abroad.
On that last point, the current political dogma is "regulation and high taxes" are stifling job creation. But the study above was from 1999 to 2009 which was essentially the entire Bush presidency – so apparently it was the high taxes and regulation of Bush that caused multinationals to export those jobs eh? And the "low taxes and low regulation" of Bush I (who raised taxes) and Clinton that created all those jobs in 1989 to 1999. This is why the dogma on TV is so dangerous – it obscures the real economics out there.
(no political affiliation)
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