By Josh Bivens
After nearly two decades of heated arguments, one might imagine that little (new or useful) could be written about the political economy of globalization and American workers. There is, however, an angle to this that actually hasn't been written about enough. It turns out that there is an easy thought exercise for clarifying one's attitudes about trade and American workers: Do you support taking $1,000 from each of the poorest two-thirds of workers in America if it could be transformed into $2,500 to be given to each of the richest third?
That's it. If you think this is a desirable transfer, then you should be sanguine about globalization's impact on U.S. workers. If you don't, then you're like me—angst-ridden about it.
This take probably doesn’t sound too familiar even to readers who try to keep themselves economically well-informed. The conventional wisdom pushed by economic pundits boils down to a simple drumbeat that global integration is “win-win.”
Surely the thought experiment above is a distinctly heterodox (and left-wing) position on globalization?
Nope. While the "win-win" formulation of the conventional wisdom isn't exactly wrong, it's woefully incomplete. In fact, the most conventional economic theory actually comes to radical-sounding conclusions regarding the globalization debate in U.S. politics.
When people argue that economics teaches that global integration is a "win-win" proposition, what they mean (whether they know it or not) is that it is "win-win" between countries. And, they're generally right. However, arguments over globalization are usually rested here. For good or bad, however, there's more than just the first chapter in the trade textbook.
The Win-Lose Angle that Is Too Often Ignored
When the United States exports insurance and aircraft while importing apparel and electronics, it is implicitly selling capital (physical and human) for labor. This exchange bids up capital's price (profits and high-end salaries) and bids down wages for the broad working and middle class. Further, this wage-loss doesn't just accrue to laid-off factory workers who have been replaced by imports. Rather, it's a permanent wage cut inflicted on all workers in the U.S. economy who resemble the import-displaced in terms of education, skills and credentials.
In short, landscapers may not lose their jobs to imports, but their wages are lowered through competition with import-displaced textile workers.
Because national income expands due to the benefits of specialization, we know the winnings from globalization accruing to owners of (both physical and human) capital exceed the losses accruing to labor. Integration remains "win-win" at the national level. Within the United States, however, there's nothing win-win about it—labor loses and capital wins, period. Further, while winnings exceed losses, there's no guarantee that winners outnumber losers, and, for our nation, they almost surely do not.
How Big Are the Losses?
Very occasionally the possibility of trade-induced redistribution is granted. Generally, however, its real-world relevance is minimized. This is the tack taken by The New York Times editorial page earlier this year, for example. The editors actually cited my own research showing that a conservative assessment of trade's impact is that it increased the inequality of wages between college graduates and other workers by 7 percent in 2006—but then argued that this explains only a non-majority fraction of the total rise in the inequality between these wages in recent decades, and was hence not worth worrying about.
However, the observation that "most" of the rise in inequality has been generated by factors other than trade is true but uncomforting. To put it another way, if I threw myself into a chasm that was "only" a one-third as deep as the Grand Canyon, I'd still be dead. Popular perceptions about how "big" trade's wage impacts are may well change if framed in more understandable terms; dollars per household, for example.
Take a typical household that includes two earners without four-year college degrees. Say they work a combined 3,600 hours per year (the average for married couples with kids) and each earns the median wage. My work suggests that trade costs this household roughly $2,500 in 2006. It costs them this much (or more) in 2007 and 2008 and so on. Since 1973 (when the U.S. economy was effectively closed to trade with much poorer nations), this household will have cumulatively nearly $20,000 due to growing global integration. This is real money, by almost anybody's reckoning.
It is important to note that this loss is a net, not a gross, outcome of global integration for this household and fully accounts for the lower-priced imports available and the new opportunities to export.
Multiply this loss by the 70 percent of the U.S. workforce without a college degree and then compare it to the programs thrown at workers in the name of holding them harmless from the impacts of trade. Trade Adjustment Assistance (TAA) was roughly $800 million in 2006. This is less than 1 percent of the aggregate income transferred from the bottom 70 percent of U.S. workers to the top from trade flows in that year. Surely it's time now to think a lot bigger about how to manage globalization for America's workers.
Josh Bivens is author of Everybody Wins, Except for Most of Us and an economist for the .
