Thursday, August 30, 2012

Globalization Hurting US Jobs Market

The historically dominant belief among economists is the economic globalization and increased trade has not been a detriment to the U.S. job market, pinning the blame squarely on technological shifts that have eroded the need for many jobs – particularly in the manufacturing sector. While many accept that advancement in technology has had some role in jobs decline, according to a recent poll in New York Times more economists are changing their opinions about globalization’s role in U.S. unemployment. Analysts now say cheap labor abroad is having more of an impact than previously realized. For more on this continue reading the following article from Economist’s View

Edward Alden of the Council on Foreign Relations:
Changing Views of Globalization’s Impact, by Edward Allen, Commentary, NY Times: ...For decades, economists resisted the conclusion that trade – for all of its many benefits — has also played a significant role in job loss and the stagnation of middle-class incomes in the United States. ...
Rather than focusing on trade, economists argued that other factors – especially “skill-biased technical change,” technological innovation that puts an added premium on skilled workers – played the biggest role in holding down middle-class wages. But now economists are beginning to change their minds. Responding to The Times’s recent survey about the causes of income stagnation, many top economists have cited globalization as a leading cause.
While the evidence is still not conclusive, it is pretty strong. Trade’s effect on jobs and income, which was probably modest through the 1990’s, now seems to be growing much larger. [list and discussion of recent studies]...
The usual rebuttal to these findings is to argue that they stem mostly from manufacturing. And manufacturing, the argument goes, is facing a long-run, secular decline in employment that is largely technology-driven, not unlike the story of agriculture in the 20th century. The job losses in manufacturing may seem as if they have been caused by trade,... but they have actually been caused by technological change.
Through the 1990s, that story was largely plausible. But over the last decade it is not. ... There is no question that over the last decade United States manufacturing has declined, taking away jobs and driving down wages for those who are still employed. Robert Atkinson and colleagues have a useful paper on this topic, showing that the loss of more than five million jobs in manufacturing in a decade was not primarily a technology and productivity story.
The real-world evidence makes it surprising that it has taken economists so long to catch on...
I've expressed pro-trade views in the past, and I still have them. But it's not enough to say, as we do, that the gains from trade are such that (under fairly general conditions) we can make everyone better off and no one worse off. If the actual result is that all the gains go to the top of the income distribution, and all the costs go to the working class -- if the distribution of the gains results in a large class of losers -- then it is much harder to defend. We must find a way to ensure that trade realizes the promise of "lifting all boats" instead of just the yachts.

This blog post was republished with permission from Economist's View.

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