Economists are still arguing over whether moving our jobs out of the country affects what the people still here get paid. Yes, really.
For example, Jared Bernstein in The Washington Post looks at different studies of the effect of moving jobs out of the country. One study, by economists David Autor, David Dorn and Gordon Hanson (referred to by Bernstein as â€śADHâ€ť), was published in January by the National Bureau of Economic Research. The other, by economist Josh Bivens at the Economic Policy Institute, was published in 2013. Both found that moving jobs out of the country hurt the wages of not just the affected workers but everyone in the surrounding area. The question is, does this wage-depressing effect spread outside the local area?
Bernstein writes, â€śThe analytic question is twofold. First, are American workers really hurt by trade competition, and second, if so, are there spillovers to those not directly in competition with imports?â€ť
To understand the difference â€¦ in Bivens vs. ADH, consider two towns, one with two businesses, a factory and restaurant, and the other with just a restaurant. In ADHâ€™s findings, the negative spillover, or diffusion, stays mostly in the first town. The factory takes a competitive hit from cheaper Chinese imports. This, of course, directly hurts the blue-collar factory workers, but it also hurts the restaurant workers, both through demand (fewer factory workers showing up for lunch) and supply (more competition for jobs at the restaurant) effects.
In Bivensâ€™s model, and this is the way most economists think about this (which doesnâ€™t, by a long shot, make it correct), the ADH story holds in town one, but town two also gets hit, even though thereâ€™s no factory there facing increased global competition. Displaced workers from town one canâ€™t find enough work there so they head for town two, and the added supply effect puts downward pressure among town twoâ€™s restaurant staff members.
It comes down to this. Do laid-off workers stay where they are (ADH), which means the wage-depression stays local? Or do they move elsewhere and compete with people who still have jobs (Bivens), thereby depressing wages there as well?
Thereâ€™s a simple way to test this. Detroit and Flint are just two examples of cities hit by factories that were closed so employers could pay less in other countries but bring the same goods back here to sell in the same stores (so executives and Wall Street shareholders can pocket the differential for themselves).
So did the laid off workers stay put (ADH) or move (Bivens)? Detroitâ€™s population was 1.85 million in 1950. That fell to 713,777 in the 2010 census. Flintâ€™s population was 196,940 in 1960 and fell to 99,763 in 2013.
They moved. The â€śeffectâ€ť did not stay in Detroit and Flint. So everyone elseâ€™s wages took a hit, too. Multiply what happened in these two cities nationally and you get the picture. If you donâ€™t get the picture, here is the picture:
OK, it isnâ€™t all that simple. ADH do look at â€ścommute zones,â€ť and there are other factors depressing wages. They cite technology, along with the â€śdecline of unions, eroding minimum wages, the rise of nonproductive finance, and especially the persistent absence of full employment labor marketsâ€ť as factors reducing worker bargaining power and fostering wage stagnation. Whatever. Bernstein writes the following, which is important especially as we head into an election where Donald Trump is using the costs of trade as a main issue:
Still, the main message from ADH, Bivens, and the rest of us whoâ€™ve been trying to raise this cost side of the equation for decades is that these costs are real. Theyâ€™re acute for many people and places and diffuse to some degree for others. Economic platitudes about how trade is always worthwhile as long as the winners can compensate the losers are an insult in the age of inequality, where the winners increasingly use their political power to claim ever more winnings.
Most of us feel the costs of moving so many jobs out of the country (and calling it â€śtradeâ€ť) while a few are making a killing from it. Those few are using their political power to keep the rigged game going.
P.S.: It is important to point out that once again the idea of â€śtradeâ€ť in elite discussion is entirely about moving American jobs to places where people are paid less and the environment is not protected, in order to reduce â€ścosts.â€ť They donâ€™t actually mean â€śtradeâ€ť as in â€śthey sell us bananas and use the money to buy carsâ€ť â€“ because who cares?
This post originally appeared on ourfuture.org on May 12, 2016. Reprinted with Permission.
Dave Johnson has more than 20 years of technology industry experience. His earlier career included technical positions, including video game design at Atari and Imagic. He was a pioneer in design and development of productivity and educational applications of personal computers. More recently he helped co-found a company developing desktop systems to validate carbon trading in the US.