Does Trade with Low Wage
Countries Create
Unemployment
Richard Stansfield
Two Questions
► It
is agreed that some of the downward
pressure on unskilled wages and
employment is due to competition, but to
what extent is not agreed.
► Even if there is a significant relationship
between the conditions of the rich and
imports from the poor, is protection of our
crisis industries the answer?
Background
► Imports
from low wage countries such as
Thailand, Taiwan and China constitute the
fastest growing elements of trade
► Theoretically
there are a host of reasons
why would expect increased trade with low
wage countries to have an effect on
employment, or at least on wages.
Minority View
► Adrian
Wood: unemployment in the North was
caused by the expansion of trade with the south,
forcing ruthless competition on domestic labourintensive industries, who in turn were forced to
shed workers, driving productivity increases
(1994).
► Statistically: imported materials from low-wage
countries have a significant negative impact on
total employment and measures related to labour
demand in industries with low skill intensity.
Majority View
► There
is not enough trade with low-wage
countries
► Krugman: External trade of the US is only
about 10% of GNP, and imports from lowwage countries are just 2.8% of American
GDP.
► Trade occurring between countries in the
North has a greater effect on employment
than North-South trade.
► Greater
impact of technical change,
automation and a need for new IT skills on
employment
► In
the face of competition from abroad,
manufacturing firms have laid off workers,
but other firms have added workers to
produce for the expanding export markets
Protection
► Even
low levels of protection can lead to
large deadweight losses, and high
protection through tariffs can lead to as
much as 10% losses in GNP.
► In terms of jobs actually saved, the
numbers seem to be very few and so this
combined with such high costs of protection
indicates that there must be much more
efficient policies available.
Conclusion
► The
relative employment and wage position of
unskilled, workers in unexposed service sectors
has worsened.
► However America’s and the EU’s problems cannot
be explained by imports from the third world.
► Taken together, the evidence is clear that
technological change is far better at explaining the
changes in wage and employment positions of the
less skilled workers than trade.
► It is also clear that protection is a
counterproductive measure for alleviating fears of
free trade.
► With
the increasing prevalence of outsourcing and
the possibility that this could be driving
technological change (Morrison Paul and Siegel
2001), our wages and labour market
characteristics may not be determined by events
in the Far-East today, but this does not mean that
we should remain a little concerned for the future.
► The effect of outsourcing is less clear than trade,
most notably because we are increasingly seeing
accounting, legal and computer service jobs
outsourced and these require higher levels of
education.