Managing Globalization: Has It Hurt US Workers?

How much truth is there to the conventional wisdom about globalization and labor? There is no doubt that jobs are being moved en masse from wealthy countries to the developing world, whether to call centers in Bangalore, research labs in Beijing or auto plants in Bratislava. But what is happening to workers in wealthy countries like the United States? Are they actually suffering the effects?

To judge by the headlines alone, you might expect to find swarms of workers prowling the United States in search of employment after being replaced, in midcareer, by less expensive labor overseas. At the very least, you would think that American wages would be pulled down by the competition from Americans' increasingly skilled counterparts abroad. But even though there are plenty of stories of layoffs and heartache, the big picture is not quite so gloomy. Yet.

"I don't really share the view, the stories we hear, that the companies that have set up shop elsewhere really are a source of losses here," said David Neumark, a professor of economics at the University of California, Irvine. "People always forget that these things are a two-way street. As you build call centers in India, you fill them with Dell computers."

Looking at the statistics, it is hard to argue that globalization has been a destructive force in the American labor market. The unemployment rate depends as much as ever on the domestic economic cycle, but its peaks have become steadily smaller since the early 1980s. The number of workers classified by the federal government as "discouraged" - those who remove themselves from the labor force because they cannot find a job - has also moved cyclically. But at the moment, it sits just under 400,000, the same as it was 10 years ago.

The absence of a huge cadre of displaced workers does not surprise Lawrence Mishel, president of the Economic Policy Institute, a research group in Washington. Yet wages, he said, could be a different story.

"There is acute pain of those people who are displaced and have a hard time finding jobs," Mishel said. "But the much larger effect is that it depresses wages for similarly skilled workers across the board. It's a distorted discussion we have in Washington that says we can deal with the costs of trade by dealing with those who lose their jobs, when the largest cost isn't those who lose their jobs but those who have lower wages."

Average wages did drop steeply from their record levels of the 1970s, when they hit $9 an hour, as calculated by the Bureau of Labor Statistics in constant 1982 dollars. But since lows of about $7.50 in the mid-1990s, average wages have actually risen to $8.36, the highest level since 1979.

Most of that rise came before 2002, but average compensation of workers, including benefits as well as wages, has continued to climb. With more money spent on health insurance and pensions, there is less for wages.

Average wages might not tell the whole story, though. Neumark said that the averages were being pushed up by the few highest earners, who can take advantage of the opportunities offered by globalization. Median wages may reflect the plight of more people. And median wages, according to the Bureau of Labor Statistics, have been flat since 1999.

"If you ask the American people, they're aware of it," Mishel said. Even despite gains in workers' productivity, about 15 percent during the recent boom, inflation-adjusted wages have not budged for most people.

There is no way to know what would have happened to wages in the absence of globalization. But one thing is certain, Neumark said: The situation has led to a substantial increase in inequality.

The winners have been shareholders, whose companies cut costs by outsourcing and using imports, and consumers, who pay lower prices for goods and services in more competitive markets. The more shares you held, and the more you consumed, the more you won. But if you lost your job, or your wage fell, you lost.

At the moment, most of the American government's efforts at helping the losers have come in the form of Trade Adjustment Assistance, a set of programs aimed at retraining laid-off workers and refitting businesses. To reach the majority of the losers, Mishel said, more comprehensive solutions are needed.

"It's a cheap date to think you can just throw some extra money at adjustment assistance and say, 'That's it, we've solved the problem,' " he said. He recommended social programs funded by higher taxes on the well-to-do. "A strong welfare state would be seen as something that facilitates and permits open trading," Mishel asserted. "They need to find a way to channel the benefits to a very broad group of people. We do need to be thinking about across-the-board national health insurance, a stronger retirement system."

Those changes could accomplish some of the redistribution Mishel advocates in the present. In the future, however, further waves of foreign workers could continue to put pressure on American wages. At that point, economists would have to find a new way to distribute the gains from opening markets, ensuring the outcome posited by economic theory: that everyone ends up better off than before.