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NewsFlash: May 6, 2008

Is globalization to blame for US workers’ troubles?

Wages no longer keep pace with productivity, the gap between the very rich and everyone else is growing wider, education gets more expensive while college loans are cut – with all the pressure on working-class Americans, is too much being made of the role globalization plays in job loss and lower wages? 

In Trade, Jobs, and Wages, released today by the Economic Policy Institute, economist Josh Bivens argues that concern about globalization’s effect on the majority of American workers is well-founded.  Bivens looks specifically at two important pressures that globalization puts on workers: job loss due to trade deficits and downward pressure on wages.

As Bivens explains, jobs are created by American exports but destroyed by imports; hence, the rising trade deficits cause job-loss. This imbalance in the U.S. economy heightens economic insecurity by causing workers to search for new work or accept jobs of lower quality, even though some job-loss can be partially offset by other influences, as when manufacturing jobs in the late 1990s were lost to trade while construction jobs boomed.

Wages are squeezed as imports from lower-wage trading partners reduce demand for domestic workers.  Between 1973 and 2006, growing trade with poorer trading partners lowered wages of U.S. workers without a four-year college degree by 4 percent.  “Four percent might not sound like much, but wages for this group rose by only two percent between in the entire 33 years between 1973 and 2006.  This group’s wage increase could have been 100 percent larger, if not for the effect of trade,” said Bivens.

“American workers are perfectly rational to worry about what globalization means for their living standards, and actually have a much better grasp of the underlying economics than do the elite policy making class who routinely tells them otherwise,” said Bivens.

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