Globalization, trade and technology not to blame for four decades of stagnant US wage

[stpioc]

First, let's assess the scale of the problem. This is handily summed up in the following graph:



Here is Knowledge@Wharton:

The view over a longer timeline provides no more comfort. The median income in this country hasn’t risen at all in real terms for 40 years. The United States since most of us were born has regularly harvested more wealth than any other nation in the history of the world, but the fruits have been increasingly carried toward the tip of the pyramid. While income in the middle brackets stagnated over the past four decades, income for the upper 1% tripled. As recently as the middle of the 20th century, the share of the United States’ national income taken by the top 10% of income earners was about one-third. Now it is more like 50%. The fortunate pinnacle, the top 1% of all households, received 10% of the nation’s total income in the middle of the 20th century. Now the upper 1% takes about one-quarter of the grand total. If you are in this segment, I hope you can be grateful without believing that this is the way things ought to be...

Another widely quoted measure of growing disparity, affecting mainly the middle class, is the ratio of CEO pay to the average American worker’s pay. This ratio, which stood at about 20 to one when I was young, is now close to 300 to one. These trends are just not healthy for the nation.

[stpioc]

If these stagnant wages were due to globalization, trade and/or technology we would see similar wage stagnation in other advanced economies. However:



Unless countries like Japan, the UK and France are somehow much less under the forces of globalization and technological change, but there is no reason to believe that. In fact, quite the contrary, these are smaller and therefore somewhat more open countries. They should have suffered more from trade and globalization, not less.

[stpioc]

One might also think that, especially for a country like France, the wage growth would have come at the cost of employment creation. Well..

[stpioc]

There is more unique working class woes going on in the US. Unique for the Western world, white working class people see their life expectancy decline. Here is Fareed Zakaria:

For decades, people in rich countries have lived longer. But in a well-known paper, economists Angus Deaton and Anne Case found that over the past 15 years, one group — middle-age whites in the United States — constitutes an alarming trend. They are dying in increasing numbers. And things look much worse for those with just a high school diploma or less. There are concerns about the calculations, but even a leading critic of the paper has acknowledged that, however measured, “the change compared to other countries and groups is huge.”

And why is that?

The main causes of death are as striking as the fact itself: suicide, alcoholism, and overdoses of prescription and illegal drugs. "People seem to be killing themselves, slowly or quickly," Deaton told me. These circumstances are usually caused by stress, depression and despair. The only comparable spike in deaths in an industrialized country took place among Russian males after the collapse of the Soviet Union, when rates of alcoholism skyrocketed.

A conventional explanation for this middle-class stress and anxiety is that globalization and technological change have placed increasing pressures on the average worker in industrialized nations. But the trend is absent in any other Western country - it's an exclusively American phenomenon. And the United States is actually relatively insulated from the pressures of globalization, having a vast, self-contained internal market. Trade makes up only 23 percent of the U.S. economy, compared with 71 percent in Germany and 45 percent in France.

That is, there is a despair present which is reflected in the decades long stagnating wages, the severance of productivity and wage growth with most of the spoils of economic growth going to the top.

Here is the changes in mortality:

[Admin]

Here is some other relevant stuff

A new study by McKinsey called "Poorer than their Parents: Flat or Falling Incomes in Advanced Economies" arrived at the following (from Fortune):

The report found that as much as 70% of the households in 25 advanced economies saw their earnings drop in the past decade. The study tracked income brackets, not individual households, from 2005 to 2014. That compares to just 2% of households that saw declining incomes in the previous 12 years.

While the facts are difficult to dispute, it's too early to draw too definite conclusions, in our view. The past decade has been plagued by the financial crisis and the eurozone crisis, and the disruption and low growth that were the result of these are bound to explain the biggest part of the wage stagnation.
However, the study shows some marked differences between countries:

At one extreme is Italy, which experienced a severe economic contraction in the recession after the 2008 financial crisis and has had a very weak recovery since. There, real market incomes were flat or falling for virtually the entire population. At the other extreme is Sweden, where only 20 percent of the population had flat or falling market incomes. In each of the four other focus countries-France, the Netherlands, the United Kingdom, and the United States-the proportion of segments whose market incomes did not advance was in the 60 to 80 percent range.

Sweden has done remarkably well on a relative basis. Is there anything we can learn from the Swedish experience? Well, here is McKinsey:

The encouraging news is that it is possible to reduce the number of people not advancing. Labor-market practices can make a difference, as can government taxes and transfers-although the latter may not be sustainable at a time when many governments have high debt levels. For example, in Sweden, where the government intervened to preserve jobs during the global downturn, market incomes fell or were flat for only 20 percent of households, while disposable income advanced for almost everyone. In the United States, lower tax rates and higher transfers turned a decline in market incomes for four-fifths of income segments into an increase in disposable income for nearly all households.

Basically, the welfare state and activist labor market policies.

[Admin]

Perhaps the most remarkable stuff from that McKinsey study mentioned in the post above isn't so much the fact that in a country like Sweden wages aren't stagnant, it is what was said about the US:

In the United States, lower tax rates and higher transfers turned a decline in market incomes for four-fifths of income segments into an increase in disposable income for nearly all households.

This really is remarkable, why? For four decades wages have essentially been stagnant, now that there is a president that has actually taken some action to combat that (higher taxes on the rich, Obamacare and the US doesn't look as bad as many other advanced countries, a revolt on the right brakes out, which sees Obama and trade as the bogeymen.

[stpioc]

Here are a couple simple propositions:

• Capitalism brings revolutionary chance
  
• Which is why conservatism and market fundamentalism are really odd bedfellows
  
• Globalization is simply the extension of capitalism on a world scale, with trade, capital and information flows crossing borders, it's not different in kind
  
• Yet there is a powerful backlash against globalization, especially trade on the right, which is odd
  

The change brings dislocation, winners and losers, but it is generally believed by economist that the net benefits are solidly positive, that is, in principle the winners should be able to compensate the losers, and still be better off. 

This points to a type welfare state which builds a safety net for the losers and enable them to deal with the change through active labor market policies like retraining. 

The US coal industry is buckling under the advent of shale gas and the fracking revolution (not Obama policies, as some have it). Amazon can slowly suck the life out of retail outlets, malls, and inner cities, etc. etc. This is all change from within. New business models leverage the change and compound the winners and losers:

If you were looking to have fun with some friends 50 years ago, you might have gone to a bowling alley. Maybe you would have hung out at a diner or gone to the movies. These were all activities that involved spending a certain amount of money in the local economy. That created opportunities for adults in your town to start and run small businesses. It also meant that a teenager who wanted to find a summer job could find one waiting tables or taking tickets at the movie theater... But the Pokémon Go economy also has some real downsides. One has to do with regional inequality. Nintendo and its partners are rumored to be earning more than $1 million per day from Pokémon Go. That money is flowing away from small and medium cities and toward big technology companies concentrated in big cities.

And obviously Pokémon Go isn’t the only example of this. Amazon is doing something similar in the retail industry, diverting business away from local retailers and sucking cash into its corporate headquarters in Seattle. Companies like Google, Facebook, and Vox Media are drawing ad dollars that previously went to local newspapers and television stations.

Pokémon Go is everything that is wrong with late capitalism - Vox

The reaction to that would not be to shut off from the rest of the world, that hasn't made any country richer, the reply is to protect and enable the losers, a more enabling welfare state.

But of course, this is anathema to market fundamentalists, so they seek bogymen in trade and globalization.

[stpioc]

If trade with low wage countries were the reason for the wage stagnation in the bottom half, we should have seen a market shift towards more skilled sectors and a loss at the low skill part. This isn't what we've seen though, here is Krugman: 

trade should have produced a shift in employment toward more skill-intensive industries; it couldn’t explain what we actually saw, which was a rise in the level of skills within industries, extending across pretty much the entire economy 

[Admin]

And here is the Wall Street Journal, no less:

Donald Trump has based a lot of his campaign in Pennsylvania on his tough stance against the North American Free Trade Agreement. But there isn’t much evidence that Nafta had a powerful impact on even the western, rust-belt part of the state. How is that possible? Whatever damage trade had done occurred mainly in the 1980s and early 1990s. By the time Nafta came into effect in 1994 and the China import surge took off in 2001, western Pennsylvania was far less vulnerable to imports. Pittsburgh was turning to hospitals and educational institutions for its resurgence, not manufacturing. And the recent natural-gas boom in the western part of the state wasn’t hurt by imports. Gas production boosted construction. Some of the gas is also being liquefied and aimed at the export market.

In Pennsylvania, Nafta’s a Campaign Issue. But It’s Not What Did the Damage. - Real Time Economics - WSJ

[stpioc]

There is more from that article that's interesting:

The Trump campaign cites studies by the liberal Economic Policy Institute, a go-to institution for labor unions, which also opposes Nafta and China trade. The EPI found that expanded trade with Mexico cost 683,000 U.S. jobs by 2010. The think tank came up with that number by looking at how much the trade deficit with Mexico had deepened during that time and figuring how many jobs those lost exports and increased imports produced. The author’s study, Robert Scott, says EPI’s work is very detailed and takes into account the output of different types of factories.

Even so, David Autor, a Massachusetts Institute of Technology expert on China trade, dismisses the EPI’s trade methodology as “naïve and not necessarily informative.” His own findings on China, which have become widely accepted, show it has produced significant job loss in some regions. Nafta hasn’t had much impact on the U.S., he says, because Mexico’s economy and workforce is too small to have the kinds of effect its critics claim. Economists John McLaren of the University of Virginia and Shushanik Hakobyan of Fordham University divided the nation into local regions and examined the effect of increased trade with Mexico on wages. For Pittsburgh’s Alleghany County, the loss in wages for high school graduates due to Nafta was less than one-third of one percentage point between 1990-2000, “which would be swamped by rounding error,” said Mr. McLaren.

For Western Pennsylvania overall, the wage loss was 0.5 percentage points. Similarly, it’s far from clear how much harm Chinese trade has done to the region.  Mr. Scott of EPI says Western Pennsylvania is one of the hardest-hit areas in the country because China’s steel industry, marked by vast overcapacity, “dumps” its products at below-market prices.

In Pennsylvania, Nafta’s a Campaign Issue. But It’s Not What Did the Damage. - Real Time Economics - WSJ

Bottom line, there are some effects in some part of the country. But this isn't much different from other changes with internal dynamics, like the coal industry losing out because of fracking causing natural gas prices to collapse. 

The point is, capitalism brings rapid changes, and there will be people losing out as a result. Rather than to close off one avenue of change, which isn't the most significant anyway (trade), we know that the gains from change usually outweigh the losses (as trade theory has it). 


The problem is that the losses are often concentrated and highly visible, while the gains are more spread out and hardly noticeable (cheaper import prices making consumers better off, for instance). 

A well functioning welfare state could support the losers and enable them to better cope with the change (training them for other jobs, for instance), but this of course is anathema to rightwingers.