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 labour- intensive 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 low- wage 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.