Download Globalization, Trade, and Income Inequality

Globalization, Trade, and
Income Inequality
Barry Bluestone
Center for Urban & Regional Policy
Northeastern University
September 30, 2004
Impacts of Globalization on U.S.
Economy
Increase standard of living through free
trade .... inexpensive imports boost real
incomes
 Increase standard of living through free
trade leading to export earnings
 Contribute to income inequality
 Reduce standard of living through
outsourcing and trade

Change in Real Hourly Wage by
Education Level – 1973-2001
Less
than
High
School
-18.5%
High
School
-4.1%
Some
College
+1.0%
College
Advance
Degree
+15.9% +19.4%
Source: Economic Policy Institute, The State of Working America, 2002/2003, Table 2.17, p. 159.
Change in Real Hourly Wage
by Education - 1973-2001
20%
19.4%
15.9%
10%
1.0%
0%
-4.1%
-10%
-20%
-18.5%
< High School
High School
Some College
College
Adv. Degree
Murder on the Inequality Express
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Suspect
Suspect
Suspect
Suspect
Suspect
Suspect
Suspect
Suspect
Suspect
Suspect
1:
2:
3:
4:
5:
6:
7:
8:
9:
10:
Technology
Deindustrialization
Deregulation
Declining Unionization
Downsizing
Winner-Take-All Labor Markets
Trade
Capital Mobility
Immigration
Trade Deficits
Imports as % of GDP
Truman
Eisenhower
Kennedy
Johnson
Nixon Ford
Carter
Reagan
Bush
Clinton
Bush W.
16%
P e rc e n t
14%
12%
10%
8%
1929 Import/GDP Ratio
6%
4%
2%
47 49 51 53 55 57 59 61 63 65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03
48 50 52 54 56 58 60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04
U.S. Trade Balance
Exports - Imports (Goods)
Truman
Eisenhower
Kennedy
Johnson
Nixon Ford
Carter
Reagan
Bush
Clinton
Bush W.
100
-100
-200
$
b illio n s
0
-300
-400
-500
47 49 51 53 55 57 59 61 63 65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03
YEAR
Samuelson’s New Argument

“Sometimes free trade globalization can
convert a technical change abroad into a
benefit for both regions; but sometimes a
productivity gain in one country can
benefit that country alone, while
permanently hurting the other country by
reducing the gains from trade that are
possible between the two countries.”
Paul Samuelson, “Where Ricardo and Mill Rebut and Confirm Arguments of
Mainstream Economists Supporting Globalization,” Journal of Economic Perspectives”
Vol. 18, No. 3, Summer 2004, p. 142.
China & India
Trade with low wage countries with lowskilled, low productivity labor forces leads
to higher real average wage in U.S., but
exacerbates U.S. income inequality
 As low wage countries improve their skills
and boost productivity, not only are lowskilled U.S. workers hurt, but high-skilled
workers as well .... reducing overall real
average wage

Historical Examples
Farming moved from U.S. East to West,
reducing Eastern incomes before
industrialization
 Textile & shoe manufacturing moved from
North to South, reducing Northern
incomes before new Northern industries
came on stream

Importance of Technology
Innovation is the key to productivity
growth ... which in turn is the key to
economic growth
 But, if innovation is exported so that the
technological gains go to another region,
then the gains from technology can be
lost, resulting in a decline in economic
growth

Outsourcing

Problems with outsourcing:
 Short-term
loss in jobs
 Long-term loss in technology ... if outsourcing
involves sending new technology abroad
 Combination of new technology and low wages
abroad can eliminate both low-skilled and highskilled jobs ... leading to slower economic growth
and lower standard of living
Public Policy Implications
Protectionism - Raise trade and
outsourcing barriers
 Fair Trade:

 Labor
& Environmental Standards
 Tie trade liberalization to country’s
commitment to raising own wages in line with
improved productivity