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March 29, 2007
Stop the Presses: A Mainstream Economist Discovers that Trade Can Hurt America's Middle Class
It's been an anxious couple of months in Hershey Pennsylvania since Hershey Chocolate announced it was planning to cut 1,500 jobs and move some production to Mexico. Friday Local 464 of the Chocolate Workers agreed to a plan that would cut some 600 jobs. Going forward the job cuts will be achieved through voluntary early retirement but layoffs are planned if there are not enough retirements. The situation at Hershey is a familiar story for many manufacturing workers throughout Pennsylvania. Manufacturing employment in the state is down 22 percent since 2000, and by over 900,000 workers since 1969.
The costs of manufacturing job loss are quite high in the United States. One out of three manufacturing workers who lost a job between 2001 and 2003 had still not found work by the start of 2004 (according to the Center for Economic and Policy Research). Another more than one out of four experienced a decline in inflation-adjusted earnings of 20 percent or more. Only one out of six had found work and earned more in January 2004.
In a story given surprising play in The Wall Street Journal (WSJ), Princeton economist, Alan Blinder believes that the troubles like those now confronting workers at Hershey are likely to begin affecting a much larger cross section of Americans. In an article in the American Prospect he wrote:
". . . the greatest problem for the next generation of American workers may not be lack of education, but rather 'offshoring' -- the movement of jobs overseas, especially to countries with much lower wages, such as India and China. Manufacturing jobs have been migrating overseas for decades. But the new wave of offshoring, of service jobs, is something different...service-sector offshoring will eventually exceed manufacturing-sector offshoring . . . for three main reasons...There are vastly more service jobs than manufacturing jobs in the United States (and in other rich countries). Second, the technological advances that have made service-sector offshoring possible will continue and accelerate. . . Third, the number of (e.g., Indian and Chinese) workers capable of performing service jobs offshore seems certain to grow, perhaps exponentially."
In the WSJ story Blinder is reported as believing that between 30 and 40 million jobs are vulnerable to offshoring in the next few decades. (For some estimates, more modest than Blinder's, of the impact of offshoring on PA metro areas between 2004 and 2015, see this Brookings Institution paper.
What to do about the long run threat of outsourcing? Blinder points to the need to:
"educate America's youth for the jobs that will actually be available in America 20 to 30 years from now, not for the jobs that will have moved offshore."
He continues:
"Educational reform is not the whole story, of course . . . [W]e need to repair our tattered social safety net and turn it into a retraining trampoline that bounces displaced workers back into productive employment. But many low-end personal service jobs cannot be turned into more attractive jobs simply by more training-think about janitors, fast-food workers, and nurse's aides, for example. Running a tight labor market would help such workers, as would a higher minimum wage, an expanded Earned Income Tax Credit, universal health insurance, and the like."
A union would also help workers in these service occupations join the middle class.
Whether Blinder is right about the scale of future service sector offshoring or overstates it, he is surely right that we need much more ambitious domestic policies to improve the quality of many of the jobs that won't go overseas. The failure to deliver such domestic policies, and to make globalization compatible with a strong U.S. middle class, is the greatest threat to maintaining an open international economy. (On this, see the comments of another economist, Dani Rodrik of the Kennedy School of Government that appeared recently in the Financial Times)
Posted by Price at March 29, 2007 10:00 AM