GLOBALIZATION, JOBS, AND INCOME

One concern frequendy voiced by opponents of globalization is that falling barriers to international trade destroy manufacturing jobs in wealthy advanced economies such as the United States and the United Kingdom. The critics argue that falling trade barriers allow firms to move their manufacturing activities to countries where wage rates are much lower. David Bartlett and John Steele, two journalists for the Philadelphia Inquirer who have gained notoriety for their attacks on free trade, cite the case of Harwood Industries, a U.S. clothing manufacturer that closed its U.S. operations, where it paid work­ers $9 per hour, and shifted manufacturing to Honduras, where textile workers receive 48 cents per hour. Because of moves such as this, argue Bartlett and Steele, the wage rates of poorer Americans have fallen significantly over the last quarter of a century.

Supporters of globalization reply that critics such as Bartlett and Steele miss the essential point about free trade – the benefits outweigh the costs. They argue that free trade will result in countries specializing in the production of those goods and services that they can produce most efficiently, while importing goods that they cannot produce as efficiently. When a country embraces free trade, there is always some dislocation – lost tex­tile jobs at Harwood Industries, for example – but the whole economy is better off as a result. According to this view, it makes little sense for the United States to produce tex­tiles at home when they can be produced at a lower cost in Honduras or China (which, unlike Honduras, is a major source of U.S. textile imports). Importing textiles from China leads to lower prices for clothes in the United States, which enables consumers to spend more of their money on other items. At the same time, the increased income generated in China from textile exports increases income levels in that country, which helps the Chinese to purchase more products produced in the United States, such as Boeing jets, Intel-based computers, Microsoft software, and Motorola cellular telephones. In this manner, supporters of globalization argue that free trade bene­fits all countries that adhere to a free trade regime.

Supporters of globalization do concede that the wage rate enjoyed by unskilled workers in many advanced economies may have declined in recent years. For example, data for the Organization for Economic Cooperation and Develop­ment suggest that since 1980 the lowest 10 percent of Amer­ican workers have seen a drop in their real wages (adjusted for inflation) of about 20 percent, while the top 10 percent have enjoyed a real pay increase of around 10 percent. In the same vein, a Federal Reserve study found that in the seven years preceding 1996, the earnings of the best paid 10 percent of U.S. workers rose in real terms by 0.6 percent an­nually while the earnings of the 10 percent at the bottom of the heap fell by 8 percent. In some areas, the fall was much greater. Similar trends can be seen in many other countries.

However, while globalization critics argue that the decline in unskilled wage rates is due to the migration of low-wage manufacturing jobs offshore and a corresponding reduction in demand for unskilled workers, supporters of globalization see a more complex picture. They maintain that the declining real wage rates of unskilled workers owes far more to a technology-induced shift within advanced economies away from jobs where the only qualification was a willingness to turn up for work every day and toward jobs that require significant education and skills. They point out that many advanced economies report a shortage of highly skilled workers and an excess supply of unskilled workers. Thus, growing income inequality is a result of the wages for skilled workers being bid up by the labor market, and the wages for unskilled workers being discounted. If one agrees with this logic, a solution to the problem of declining incomes is to be found not in limiting free frade and globalization, but in increasing society’s investment in education to reduce the supply of unskilled workers. Some research also suggests that the evidence of growing income inequality may be suspect.

Date: 2014-12-21; view: 1396