Globalization And Its Malcontents
Are jobs being “exported” to foreign countries as businesses struggle to cut costs? Are high-wage industries succumbing to import competition? Are workers displaced from “good” jobs taking pay cuts just to stay employed? You bet. It happens every day.
But to say globalization puts Americans in some kind of race-to-the-bottom is going too far. Popular perceptions to the contrary, the benefits of globalization far outweigh its costs, and the record shows wages rising during the most recent period of expanding trade and investment.
To test the job degradation hypothesis we examined the payroll performance of 373 industries comprising all non-governmental activities in the United States between 1989 and 2000. If high-wage industries accounted for disproportionate job losses, and vice-versa, one would expect to find an inverse relationship. But such was decidedly not the case. In fact, to the extent there was any relationship between wages and jobs at all, it was positive, though just barely. High-wage industries tended to be job gainers.
To be sure, one can identify some high-wage industries, like steel mills, that were job losers. But other industries famously suffering from import competition–like footwear and textile manufacturing–paid relatively low wages. Meanwhile, it must be recognized that other industries, such as financial services and software, where America’s competitive advantage is well established, experienced large job gains and paid high wages.
But what about the past few years, when the recession, jobless recovery and widening trade deficits began drawing increased attention? Detailed industry information isn’t yet available for this period, but other resources suggest the job degradation hypothesis is still off base. Read wages have risen consistently since 2000, at least in the aggregate. In fact, real wages typically fall during, and immediately after, recessions, but this last experience showed unusual resilience. That’s certainly not what one would expect if the highest paying jobs were disproportionately being lost.
So why such a clash between perceptions and reality? Perhaps it has to do with the fact that the benefits of globalization are inconspicuous and broadly diffused. Those benefiting from foreign sales or cheaper imports, often indirectly, may not make the connection with increasingly open trade, whereas those confronted by foreign competition are attuned to the source of their threat.
Another explanation is that there’s confusion about the nature of our industrial woes. In addition to the restructuring process facilitated by globalization, we’ve encountered tow cyclical challenges that have probably exaggerated the perception of trade-related dislocations. First, recessions always take a harsher toll on the manufacturing industries, and this past experience was no exception in that regard. Second, the dollar was lofty on foreign exchange markets until just over one year ago, and that can make imports seem heroically competitive even if there’s been no underlying change in their products or prices.
But while the process of globalization is relentless, the two cyclical factors are not. The manufacturing industries, for example, are cyclical in both directions, meaning that a swiftly growing economy, the likes of which we’re now beginning to see, should give them a disproportionate bounce. And a weaker currency, which is also increasingly in hand, should endow industries with a feistiness to take the edge off import competition.
None of this, of course, means that globalization angst will entirely to away. But two-out-of-three ain’t bad, so it will probably let up as the economy’s improvement, and weaker dollar, play out.
Richard DeKaser is Senior Vice President and Chief Economist of National City Bank.
