Monday, July 18, 2016

The negative effects of globalization on employment and wages are larger than many people realized

By Mark Thoma MoneyWatch July 18, 2016


The American public has long been suspicious of international trade, but economists have been much more supportive. However, new evidence in the economics literature has caused a rethinking of how to evaluate trade agreements.

This research documents that the negative effects of globalization on employment and wages are larger than many people realized. In addition, it recognizes that most of the benefits have accrued to those at the top of the income distribution while the costs -- lost jobs, lower wages and fewer attractive employment opportunities -- have fallen mainly on the working class.

One response from many advocates is to point out that international trade has lifted millions of people around the world out of poverty and that reducing the pace of globalization would slow the rate of global poverty reduction.


For one thing, it isn't clear that the benefits to the poor in other countries ought to be excluded from the calculation. It depends on what voters care about. If people in the U.S. care greatly about lifting the world out of poverty and would penalize a politician who interferes with that goal, then a politician who wants to be elected should take this into account.

But what if people care the most about those closest to them, their families, their co-workers, their local communities and so on? The fact that trade helps the poor in other countries might matter to them, but not nearly as much as how it affects their own futures and the futures of those closest to them.


Economists should do all they can to inform people of the costs and benefits of globalization and to provide information on how the costs are distributed. They should also point out things that have been excluded from the discussion of the costs and benefits above, for example, the fact that trade results in lower prices and a greater variety of goods than would otherwise be available.
[This doesn't make up for the damage to those who are unemployed or at the bottom of the economic scale. The lower prices don't necessarily make up for lower wages.]


But what economists shouldn't do is tell people what they should care about. It's understandable that people will put the most weight on the welfare of those closest to them, and if they choose to place the welfare of family and their communities above the welfare of the poor in other countries, that's understandable.


My economic future is secure. I have tenure at a university and an income that's more than adequate. I don't know what it's like to face substantial economic insecurity. I don't wonder if I'll have a job in the future or a chance to advance. Or if I'll be able to send my kids to college, afford health care or have a decent retirement.

It's easy for me to put the welfare of the poor in other parts of the world high on my list of concerns.
[An hones person]


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