Globalization and the Labor Market

I thank Allan Mendelowitz and Matt Slaughter for helpful comments. All opinions and errors are mine. 1 In this paper I survey the effects of international trade and other influences on the US labor market. First, I examine the move toward globalization and its various manifestations. Second, I trace out the main labor market changes that have occurred over the last two or three decades – declines in manufacturing and industrial employment and in the demand for less skilled workers along with increases in earnings inequality and slow real earnings growth. I then move on to examine the extent to which increases in international trade, especially from Less Developed Countries (LDCs), have contributed to these phenomena. Rather than emphasize the theoretical and technical basis for such calculations I concentrate on surveying the empirical evidence that has considered the importance of trade flows 1. That is not my comparative advantage, rather I will describe a number of empirical strategies that have been used to tease out any labor market effects 2. The conclusion I reach is that no matter which of these methods is used, it does not appear that globalization is the smoking gun. It is appropriate then to look elsewhere for the culprit. There is no single factor, but it seems that several influences have been at work-technological change; immigration; declining unionization; declining levels of the real minimum wage as well as reductions in the supply of college-educated workers. Concerns about globalization – the increasing international integration of markets for goods, factors and technology – are widespread. Globalization has arisen both through an increased trade in goods plus easier movements of factors of production – 1 The interested reader is referred to papers by Deardorff and Haikura (1994) and Johnson and Stafford (1999) for a theoretical treatment. 2 A number of earlier papers have also surveyed the empirical literature on how the 'openness' of an economy affects a country's labor market (e. 2 capital and labor – across national boundaries. The United Nations (1999) recently identified a number of fascinating features about the expansion of world trade. 1. World exports of goods and services almost tripled between the 1970s and 1997 in real terms. 2. Foreign direct investment topped $400 billion in 1997; seven times the level in real terms in the 1970s. 3. The daily turnover in foreign exchange markets increased from around $10-20 billion in the 1970s …