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NewsFlash: October 10, 2007

Globalization causes inequality, wage loss in U.S.

A new Economic Policy Institute report examines how globalization threatens the wages of American workers. Globalization and American Wages: Today and Tomorrow, by EPI economist Josh Bivens, finds that globalization causes an increase in wage inequality and wage losses that may only get worse with time.

“So far, we have been far too cheap in helping American workers harmed by globalization,” said Bivens.  “Ignoring these costs has denied American workers the full measure of compensation that global integration demands.”

Bivens notes that globalization tilts U.S. production towards industries like finance and aircraft and away from industries like apparel and consumer electronics.  This tilt decreases domestic demand for production workers and those without a 4-year college degree in favor of professional and supervisory workers.

While gains to professionals generally exceed losses from other workers, national income is increased, but, the resulting inequality leads to production workers and those without a 4-year college degree (over 70% of the workforce) experiencing outright wage losses.

By Bivens’ measurement, globalization increased inequality in U.S. earnings by roughly 7% by 2006. That translates into a $2,000 loss in annual earnings for a prototypical household (two earners making the median wage and working the average amount of household hours each year). This amount rivals the entire annual federal income tax bill paid by this household in 2006.

Bivens also examines Princeton Professor Alan Blinder’s forecasts of the future reach of service-sector offshoring. He finds that if Blinder is roughly correct about offshoring’s future reach (i.e., roughly doubling the number of U.S. jobs that are “up for grabs” in the global labor market), then all wage gains made by U.S. workers without a 4-year college degree since 1979 could be erased

“The largest cost of globalization is the loss in wages for all workers who resemble those displaced by imports in terms of education, skills, and credentials,” said Bivens. “Landscapers, for example, may not get replaced by imports, but, their wages suffer from having to compete with laid-off apparel workers.” 

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