Do US Job Losses Stem From Imports?
PAUL Krugman has no qualms about the academic dictum, ``publish or perish.''
The Massachusetts Institute of Technology economist has just come out with a new book, ``Peddling Prosperity: Economic Sense and Nonsense in the Age of Diminished Expectations'' (W. W. Norton, New York). He has an article in the latest issue of Foreign Affairs, entitled, ``Competitiveness: A Dangerous Obsession,'' and another article in the April issue of Scientific American, entitled, ``Trade, Jobs and Wages'' that he wrote with Harvard economist Robert Z. Lawrence. He will soon have articles in the Harvard Business Review and Foreign Policy.
``It is a matter of sheer luck'' that the articles and book are coming out about the same time, he says.
A chapter of the book and the two published articles deal with a hot issue: the impact of trade on jobs and income inequality in the United States. Many businesspeople and politicians hold that the failure of the US to compete adequately in an increasingly integrated world economy has led to the loss of good-paying industrial jobs and a decline in real wages in the 1980s for those with high school or less education. As more imports come from low-wage third-world nations, the incomes of those with low skills in the US are being depressed. A new Census Bureau study found that 18 percent of year-round, full-time workers earned less than $13,091 in 1992.
Faced with this situation, the Clinton administration is threatening Japan with trade sanctions if it does not open further its domestic market to US imports. Each nation is ``like a big corporation competing in the global marketplace,'' President Clinton has said.
Messrs. Krugman and Lawrence say such conventional wisdom is false, that the real economic problems of the US lie at home. Here's their argument:
The fraction of US workers employed in manufacturing has been declining since 1950. It was 34.2 percent in 1950 and 17.4 percent in 1990. Also, the share of US output accounted for by value added in manufacturing has fallen from 29.6 percent of gross domestic product (GDP) to 18.4 percent in the same time- span. To measure value added, economists deduct from total company sales the cost of raw materials and other inputs.
Imports of manufactured goods rose from 11.4 percent of the manufacturing contribution to GDP in 1970 to 38.2 percent in 1990. But exports of manufactured goods also rose dramatically, from 12.6 to 31 percent of valued added. To assess the overall impact of trade on US manufacturing, the net effect of the simultaneous growth of exports and imports must be reckoned. Krugman and Lawrence calculate this net shift between 1970 and 1990 as only 1.5 percent of GDP, less than a quarter of the 6.6 percentage point decline in the share of manufacturing of GDP.
After making some further calculations, the economist pair conclude that the trade-related loss of manufacturing jobs has resulted in the loss of ``only'' $3.5 billion in wages, or 0.07 percent of total national income.
The concern, voiced during the 1950s and 1960s, that industrial workers would lose their jobs because of automation, is closer to the truth than today's trade argument, they hold. Productivity in manufacturing has grown rapidly, costing jobs, as it has in farming.
Nor, the two argue, can the deterioration in the terms of trade resulting from the devaluation of the dollar account for the stagnation in US worker earnings. Examining an economic theory called ``factor price equalization,'' the two also conclude that low wages abroad have not been the driving force behind the growing wage gap between the less-educated and the more-educated.
Edward Leamer of the University of California in Los Angeles criticizes the Krugman-Lawrence explanation of growing income inequality as ``not logically sound.'' His own estimate is that foreign competition accounts for 15 to 20 percent of the income inequality trend. He admits such numbers are shaky.
Mr. Leamer, however, agrees with the two East Coast economists that fresh trade barriers are not a solution. What's needed, he says, is better education and training of the American work force so that it is insulated - not isolated - from international competition. US worker skills will not be available elsewhere.