Saturday, November 2, 2013

STUDY: Effects of Rising Imports on US Workers

Workers bear substantial costs as a result of the "shock" of rising import competition.

In the past two decades, China's manufacturing exports have grown dramatically, and U.S. imports from China have surged. While there are many reports of plant closures and employment declines in sectors where import competition from China and elsewhere has been strongest, there was little research of the long-run effect on workers.

From the NBER: A study titled Trade Adjustment: Worker Level Evidence examines the impact of exposure to rising trade competition from China on the employment and earnings trajectory of U.S. workers between 1992 and 2007. They find that workers bear substantial costs as a result of the "shock" of rising import competition. The adjustment to such shocks is highly uneven across workers, and varies according to their previous conditions of employment.

Individuals who in 1991 worked in manufacturing industries that experienced high subsequent import growth earned lower cumulative earnings over the 1992-2007 period, and they were at elevated risk of exiting the labor force and obtaining public disability benefits.

The difference between a manufacturing worker at the 75th percentile of industry trade exposure and one at the 25th percentile of exposure amounted to reduced earnings equal to 46% of initial yearly income.

Trade exposure also increased job churning across firms, industries, and sectors. Workers in sectors highly exposed to trade with China spent less time working for their initial employers, less time in their initial two-digit manufacturing industries, more time working elsewhere in manufacturing, and more time working outside of manufacturing. 

The authors of the study find that both the degree of job churn and the way earnings and employment adjust to import shocks differ substantially across demographic groups. 

Earnings losses are larger for individuals with low initial wages, low initial tenure, low attachment to the labor force, and for those employed at large firms with low wage levels.

Losses for workers with high initial earnings are generally quite modest. For a given size import shock, high wage workers experience a larger reduction in their earnings and employment with their initial employer compared to low wage workers. However, for high skill workers separations are more likely to be voluntary, and are less likely to take place as part of a mass layoff, so initial losses are offset by gains in subsequent jobs.

Low-wage workers tend to stay longer in their initial trade-exposed firms and industries, are more likely to separate from their initial firm during mass layoffs, and incur greater losses of earnings both at the initial firm and after moving to other employers.

Adam Smith, who is known as the father of economics, wrote:

"How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortune of others, and render their happiness necessary to him, though he derives nothing from it except the pleasure of seeing it."

From Marxism, Socialism & Technology

1. People must be sufficiently wealthy that they have pro-social motives --- the potential for cooperation grows with income --- desperate men rarely think of others.

2. Technologies must exist which permit cooperative modes of production, and which capitalism cannot develop.

Here, though, it is quite possible to argue that we are moving in this direction, in (at least) two ways:

  • The decline of mass production and rise of more human capital-intensive businesses means that traditional capitalism with external shareholders and top-down hierarchies is no longer technically efficient.
  • The internet is facilitating cooperation at the expense of traditional capitalism. We see this most clearly in the way the media and music industries are suffering.

The socialist revolution might take as long as the industrial revolution. There is a sharp difference between Marxism and the soft "Left" --- Marxists are skeptical about the possibilities for non-market forms of cooperation within capitalism.

From Market Failure and Government Failure by Jared Bernstein

We’re still climbing out of the last great market failure: the downturn born of the housing bubble. To the extent that lenders knew what was going on, they not only didn’t care, in part because they could unload the risk down the line, they were also compelled by the profit motive to keep dancing “as long as the music is playing,” as Citigroup's chief executive said at the time.

In other words, the oversight, or regulatory function that should have prevented all this failed. The myriad agencies, from the Federal Reserve to the alphabet soup of (too many) others supposedly focused on some aspect of financial markets, were either asleep at the switch, gutted by lobbying efforts to defund and defang them, or, in the case of the Greenspan Fed, ideologically convinced that markets would “self-regulate.”

There’s an additional market failure lurking in the background: the vast increase in inequality and the middle-class income stagnation that occurs in its wake. Given their historically weak wage growth, the only way many families could get ahead was to borrow into the bubble. The accumulation of so much wealth at the top meant lots of cheap capital to lend, and lots of lobbying dollars to ensure that the oversight mechanisms were shut off.

All of this, of course, led to the Great Recession from which we’re still recovering, and this introduces the next chapter in market/government failure.

The empirically bereft theory of austerity — that cutting the deficit in periods of weak demand will revive that demand — has policy makers in advanced economies across the globe consolidating public debt far too soon.

This government failure is not going unnoticed. What it ultimately amounts to — how voters channel it — is to be seen. Clearly, such discontent can all too easily be channeled in negative directions leading to more divisiveness, nativism and even deeper dysfunction.

A new leader (or movement)...must explain how and why the market has failed to provide enough jobs, opportunities, income and mobility for so many for so long. How the notion that the government and market are in opposition, as opposed to complementary, is precisely the recipe for increased failures. How sending [Tea Party] people to Washington who campaign against government will only ensure that it remains a failed institution. How dangerous that is, in a world where the challenges of globalization, climate change, retirement security, market failures are growing stronger every year.

The depth of the failure of these two large, essential institutions [the markets and government] leaves us at a crossroads.

Yes it does. yes it does.

With the continued offshoring of better-paying jobs to low wage countries (and with 1/3 of all jobs still prone to more offshoring), we have ended up with a slew of low-paying jobs in a service economy. Just from 2000-2010 alone, the U.S. manufacturing sector lost 5.8 million jobs (labor unions and manufacturing have been in a steady decline since 1979).

In the US, our "free Markets" have been fraudulent markets, and that's why capitalism requires good government ------ Now what?

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