Ben Bernanke: Embracing the Challenge of Free Trade: Competing and Prospering in a Global Economy
Ben Bernanke on the benefits and challenges of free trade. The speech covers:
Here's the speech itself. I expect this will convert all you doubters into enthusiastic supporters of the free trade agenda:
Embracing the Challenge of Free Trade: Competing and Prospering in a Global Economy, by Ben S. Bernanke, Chair, Federal Reserve Board: Trade is as old as humanity, or nearly so. Archaeological sites demonstrate that ancient peoples traded objects such as rare stones and shells across fairly long distances even in prehistoric times (Guisepi, 2000). Over the centuries, with stops and starts, the volume of trade has expanded exponentially, driven in large part by advances in transportation and communication technologies. Steamships replaced sailing ships; railroads succeeded canal barges; the telegraph supplanted the Pony Express. Today, in a world of container ships, jumbo jets, and the Internet, goods and many services are delivered faster and more cheaply (in inflation-adjusted terms) than ever before.1
Today I will discuss the crucial economic benefits we receive from the ongoing expansion of international trade. I will also address the adverse effects of trade and some possible ways to mitigate them. I will argue that one possible response to the dislocations that may result from trade--a retreat into protectionism and isolationism--would be self-defeating and, in the long run, probably not even feasible. Instead, our continued prosperity depends on our embracing the many opportunities provided by trade, even as we provide a helping hand to individuals and communities that may have suffered adverse consequences.
The Benefits of Trade
At the most basic level, trade is beneficial because it allows people to specialize in the goods and services they produce best and most efficiently. For example, we could conceivably all grow our own food and provide our own medical care. But because farming and medicine require special knowledge and skills, a far more efficient arrangement is for the farmer to specialize in growing food and for the doctor to specialize in treating patients. Through the specialization made possible by trade, the farmer can benefit from the doctor's medical knowledge and the doctor can enjoy lunch. The opportunity to trade allows everyone to play to his or her own strengths while benefiting from the productive skills of the whole community. Indeed, economists have demonstrated that trade between two people can be beneficial even if one of them is more skilled than the other at every task, so long as the more-skilled person specializes in those tasks at which he or she is relatively more productive.What applies to individuals applies to nations as well. Two centuries ago the economist David Ricardo famously observed that, if England specialized in making cloth while Portugal specialized in producing wine, international trade would allow both countries to enjoy more of both goods than would be possible if each country produced only for domestic consumption and did not trade. As in the case of individuals, this conclusion applies even if one country can produce both cloth and wine more cheaply than the other, so long as each country specializes in the activity at which it is relatively more productive. A telling confirmation of Ricardo's insight is that, when nations go to war, their first order of business is often to try to block the other's access to trade. In the American Civil War, the North won in large part because its blockade of Southern ports prevented the Confederacy from exporting its cotton. In the twentieth century, the fact that Great Britain and its allies were able to disrupt German trade more successfully than Germany could impede the flow of goods into and out of Great Britain bore importantly on the ultimate outcomes of both world wars.
Patterns of trade are determined by variations in a number of factors, including climate, the location of natural resources, and the skills and knowledge of the population. I suppose that one could grow roses commercially here in Montana for Valentine's Day, but it would likely require climate-controlled greenhouses complete with artificial lighting--very expensive. A much less costly solution is for Montanans to grow and sell wheat, then use the proceeds to buy roses from localities where the weather is balmy in February.
This is all standard textbook material, and it may well leave you unconvinced of the importance of international trade. After all, the United States is a big country, and we can certainly achieve many of the benefits of specialization by trading within our own borders. How important is it for the health of our economy to trade actively with other countries? As best we can measure, it is critically important. According to one recent study that used four approaches to measuring the gains from trade, the increase in trade since World War II has boosted U.S. annual incomes on the order of $10,000 per household (Bradford, Grieco, and Hufbauer, 2006).2 The same study found that removing all remaining barriers to trade would raise U.S. incomes anywhere from $4,000 to $12,000 per household. Other research has found similar results. Our willingness to trade freely with the world is indeed an essential source of our prosperity--and I think it is safe to say that the importance of trade for us will continue to grow.
In practice, the benefits of trade flow from a number of sources. By giving domestic firms access to new markets, trade promotes efficient specialization, permits economies of scale, and increases the potential returns to innovation.3 U.S. firms increasingly seek to expand production and profits through new export opportunities; indeed, U.S. exports grew about 9 percent in real (that is, inflation-adjusted) terms last year. Export-oriented U.S. manufacturing industries include producers of aircraft, construction equipment, plastics, and chemicals. The United States also excels in the manufacture and export of sophisticated capital goods and scientific equipment. Outside of manufacturing, a number of U.S. high-tech companies, including software developers and online service providers, are world leaders in their fields. American films and music attract large worldwide audiences. Montana's exports include wheat, metal ores, and high-tech materials that are critical to the production of semiconductors.
Firms that emphasize exports are among America's most dynamic and productive companies. Relative to firms that produce strictly for the domestic market, exporters tend to be more technologically sophisticated and to create better jobs. Among U.S. manufacturers, for example, exporters pay higher wages and add jobs more rapidly than non-exporters (Bernard and Jensen, 1999). A significant portion of U.S. international trade is conducted by multinational firms; studies show that these firms generally pay higher wages than purely domestic firms, both in the United States and in developing countries (Doms and Jensen, 1998; Bhagwati, 2004, p. 172). U.S. firms with a global reach tend to be better diversified and are better able to respond to new market opportunities wherever they may arise.
Exports are important, but so are imports. Without trade, some goods would be extremely expensive or not available at all, such as the Valentine's Day roses of my earlier example or out-of-season fruits and vegetables. Trade also makes goods available in more brands and varieties; examples include automobiles, consumer electronics, garments and footwear, wines, and cheeses. One of the great attractions of globalization is that it brings to consumers the best of many cultures. And of course, global trade allows many types of goods, especially consumer goods, to be purchased at lower prices. Lower prices help all consumers but may be especially helpful to those with tight budgets. Indeed, a number of the large, import-intensive retail chains in the United States are focused on low- and moderate-income consumers, who benefit from being able to buy a wide variety of lower-priced goods.
Another substantial benefit of trade is the effect it tends to have on the productivity of domestic firms and on the quality of their output.4 By creating a global market, trade enhances competition, which weeds out the most inefficient firms and induces others to improve their products and to produce more efficiently. The U.S. manufacturing sector, which is perhaps the sector most exposed to international competition, has achieved truly remarkable increases in its productivity in the past decade or so. In addition, international supply chains, made possible by advances in communication and transportation, reduce costs and increase the competitiveness of U.S. firms. Trade also promotes the transfer of technologies, as when multinational firms or transplanted firms bring advanced production methods to new markets.
Trade and finance are closely linked and mutually supporting, and in recent decades international financial flows have grown even more quickly than trade volumes. The globalization of finance plays to the strengths of U.S. financial institutions and financial markets. The United States has a large surplus in trade in financial services, and U.S. firms are leaders in providing banking, investment, and insurance services to the world. Financial openness allows U.S. investors to find new opportunities abroad and makes it possible for foreigners to invest in the United States. The ability to invest globally also permits greater diversification and sharing of risk.
Trade benefits advanced countries like the United States, but open trade is, if anything, even more important for developing nations. Trade and globalization are lifting hundreds of millions of people out of poverty, especially in Asia, but also in parts of Africa and Latin America (Bhagwati, 2004). As a source of economic growth and development in poor countries, trade is proving far more effective than traditional development aid (Easterly, 2006). The transition economies of central and eastern Europe have also benefited greatly from trade, especially trade with the rest of the European Union. A recent study by the World Bank compared two groups of developing countries, dubbed the "globalizers" and the "nonglobalizers." Collectively, the globalizers have doubled the ratio of trade to their gross domestic product (GDP) over the past twenty years, in part because of sharp cuts in tariffs on imports; the nonglobalizers, collectively, have seen a decline in their trade-to-GDP ratio over the same period (Dollar and Kraay, 2004). Among the globalizers, economic growth accelerated from 2.9 percent per year in the 1970s, to 3.5 percent in the 1980s, to 5 percent in the 1990s. In contrast, the nonglobalizers have seen their growth decline from 3.3 percent per year in the 1970s to 0.8 percent in the 1980s and 1.4 percent in the 1990s. The study also found that, among the globalizers, absolute poverty declined significantly and the degree of income inequality changed little.5
If trade is so beneficial, why do we sometimes see political resistance to freer, more open trade? Notably, negotiations in the so-called Doha Round of trade talks now under way have proceeded very slowly, notwithstanding a consensus among economists that all countries involved would enjoy substantial benefits from further trade liberalization. One important reason is that, although trade increases overall prosperity, the benefits for some people may not exceed the costs, at least not in the short run. Clearly, the expansion of trade helps exporting firms and their workers. As consumers, nearly all of us benefit from trade by gaining access to a broader range of goods and services. But some of us, such as workers in industries facing new competition from imports, are made at least temporarily worse off when trade expands. Because the benefits of trade are widely diffused and often indirect, those who lose from trade are often easier to identify than those who gain, a visibility that may influence public perceptions and the political process. That said, the job losses and worker displacement sometimes associated with expanded trade are a legitimate economic and social issue. In the remainder of my remarks, I will focus on the impact of trade on U.S. jobs--both positive and negative--and discuss some possible policy responses.
Trade and Jobs
Does opening U.S. markets to foreign producers destroy jobs at home? The expansion of trade or changes in trading patterns can indeed destroy specific jobs. For example, foreign competition has been an important factor behind declining employment in the U.S. textile industry, including in my home state of South Carolina. Job loss--from any cause--can create hardship for individuals, their families, and their communities. I will return shortly to the question of how we should respond to the problem of worker displacement.For now, however, I will point out that trade also creates jobs--for example, by expanding the potential market overseas for goods and services produced in the United States, as I have already discussed. Trade creates jobs indirectly as well, in support of export activities or as the result of increased economic activity associated with trade. For example, gains in disposable income created by lower consumer prices and higher earnings in export industries raise the demand for domestically produced goods and services. Domestic production and employment are also supported by expanded access to raw materials and intermediate goods. The U.S. jobs created by trade also tend to offer higher pay and demand greater skill than the jobs that are destroyed--although a downside is that, in the short run, the greater return to skills created by trade may tend to increase the wage differential between higher-skilled and lower-skilled workers and thus contribute to income inequality (Bernanke, 2007).
The effects of trade on employment must also be put in the context of the remarkable dynamism of the U.S. labor market. The amount of "churn" in the labor market--the number of jobs created and destroyed--is enormous and reflects the continuous entry, exit, and resizing of firms in our ever-changing economy. Excluding job layoffs and losses reversed within the year, over the past decade an average of nearly 16 million private-sector jobs have been eliminated each year in the United States, an annual loss equal to nearly 15 percent of the current level of nonfarm private employment.6 The vast majority of these job losses occur for a principal reason other than international trade (Kletzer, 2001; Bernanke, 2004). Moreover, during the past ten years, the 16 million annual job losses have been more than offset by the creation of about 17 million jobs per year--some of which, of course, are attributable to the direct and indirect effects of trade. Truly, the U.S. labor market exhibits a phenomenal capacity for creative destruction.
If trade both destroys and creates jobs, what is its overall effect on employment? The answer is, essentially none. In the long run, the workings of a competitive labor market ensure that the number of jobs created will be commensurate with the size of the labor force and with the mix of skills that workers bring. Thus, in the long run, factors such as population growth, labor force participation rates, education and training, and labor market institutions determine the level and composition of aggregate employment. To see the irrelevance of trade to total employment, we need only observe that, between 1965 and 2006, the share of imports in the U.S. economy nearly quadrupled, from 4.4 percent of GDP to 16.8 percent. Yet, reflecting growth in the labor force, employment more than doubled during that time, and the unemployment rate was at about 4-1/2 percent at both the beginning and end of the period. Furthermore, average real compensation per hour in the United States has nearly doubled since 1965.
Although many readily accept that balanced trade does not reduce aggregate employment, some might argue that the United States' current large trade deficit must mean that the number of U.S. jobs has been reduced on net. However, the existence of a trade deficit or surplus, by itself, does not have any evident effect on the level of employment. For example, across countries, trade deficits and unemployment rates show little correlation. Among our six Group of Seven partners (the world's leading industrial countries), three have trade surpluses (Canada, Germany, and Japan). However, based on the figures for February of this year, the unemployment rates in Canada (5.3 percent) and in Germany (9.0 percent) are significantly higher than the 4.5 percent rate in the United States; and Japan's unemployment rate, at 4.0 percent, is only a bit lower.7 Factors such as the degree of flexibility in the labor market, not trade, are the primary source of these cross-country variations in unemployment.
What About Outsourcing Abroad?
The debate about the effects of trade on employment has been intensified by the phenomenon of outsourcing abroad, or "offshoring." Offshoring has been driven by several factors, including improvements in international communication, the computerization and digitization of some business services, and the existence of educated, often English-speaking workers abroad who will perform the same services for less pay. A portion, though not all, of these wage differentials reflects differences in skills and productivity; for example, outsourced programming work is usually simpler and more routine than programming done in the United States.The increase in outsourcing abroad has led to dire predictions about a wholesale "export" of U.S. jobs in coming years. Although globalization and trade will continue to be forces for economic change, concerns about a massive loss of jobs due to offshoring do not seem justified. Companies have found outsourcing abroad profitable primarily for jobs that can be routinized and sharply defined. Certainly, advancing technology will continue to increase the feasibility of providing services from remote locations. For the foreseeable future, however, most high-value work will require creative interaction among employees, interaction which is facilitated by physical proximity and personal contact. Moreover, in many fields, closeness to customers and knowledge of local conditions are also of great importance. These observations suggest that, for some considerable time, outsourcing abroad will be uneconomical for many types of jobs, particularly high-value jobs.8
Moreover, a balanced discussion of outsourcing abroad should reflect that, just as U.S. firms use the services of foreigners, foreign firms make considerable use of the services of U.S. residents. Many do not realize that, in contrast to its trade deficit in goods, the United States runs a significant trade surplus in services--particularly in business, professional, and technical services. This country provides many high-value services to users abroad, including financial, legal, engineering, architectural, and software development services, whereas many of the services imported by U.S. companies are less sophisticated and hence of lower value.9 A recent study of twenty-one occupations that are most likely to be affected by outsourcing found that net job losses were concentrated almost exclusively in the lower-wage occupations and that strong employment gains have occurred in the occupations that pay the highest wages.10 Further expansion of trade in services will help, not hurt, the U.S. economy and the labor market.
Just as discussions of the outsourcing of business services tend to ignore the services U.S. firms sell to other countries, so do discussions of the movement of jobs offshore ignore the fact that foreign firms also move jobs to the United States. Between 1996 and 2004 (the most recent data available), the employment of U.S. residents by majority-owned nonbank affiliates of foreign companies operating within the United States increased by about 1 million jobs. In 2004, U.S. affiliates of foreign companies accounted for more than $500 billion in value added (about half in manufacturing) and about $180 billion in exports. Globalization and offshoring work both ways.
Responding to Job Displacement
Although trade has many positive effects in the labor market, nothing I have said this morning is intended to minimize the real costs imposed on workers and communities when new competition from abroad leads to job losses and displacement. What can be done to help workers who lose their jobs as a consequence of expanded trade?Restricting trade by imposing tariffs, quotas, or other barriers is exactly the wrong thing to do. Such solutions might temporarily slow job loss in affected industries, but the benefits would be outweighed, typically many times over, by the costs, which would include higher prices for consumers and increased costs (and thus reduced competitiveness) for U.S. firms. Indeed, studies of the effects of protectionist policies almost invariably find that the costs to the rest of society far exceed the benefits to the protected industry. In the long run, economic isolationism and retreat from international competition would inexorably lead to lower productivity for U.S. firms and lower living standards for U.S. consumers (Bernanke, 2004).
The better approach to mitigating the disruptive effects of trade is to adopt policies and programs aimed at easing the transition of displaced workers into new jobs and increasing the adaptability and skills of the labor force more generally. Many suggestions for such policies have been made. Currently, the government's principal program for helping workers displaced by trade is the Trade Adjustment Assistance program, which is up for renewal before the Congress this year. As now structured, the program offers up to two and a half years of job training, allowances for job search and relocation, income support for eligible workers, and health insurance assistance for some. Elements of other proposals being discussed (Kletzer and Rosen, 2006; Kling, 2006; Mann 2003, 2004) include job-training tax credits and wage insurance, which would help offset pay cuts that often occur when displaced workers change jobs. Another approach is to focus on establishing policies that reduce the cost to workers of changing jobs, for example, by increasing the portability of pensions or health insurance between employers. As new technologies expand the range of occupations that may be subject to international competition, measures to assist affected workers become all the more important. It would not be appropriate for me to endorse specific programs; that is the prerogative of the Congress. However, I can safely predict that these and other policy proposals to address concerns about worker displacement will be the subject of active debate in coming years.
More generally, investing in education and training would help young people entering the labor force as well as those already in mid-career to better manage the ever-changing demands of the workforce (Bernanke, 2007). A substantial body of research demonstrates that investments in education and training pay high rates of return to individuals and to society as a whole (Acemogulu and Angrist, 2001; Becker, 1964; Card, 1999; Topel, 2004). Importantly, workforce skills can be improved not only through K‑12 education, college, and graduate work but also through a variety of expeditious, market-based channels such as on-the-job training, coursework at community colleges and vocational schools, extension courses, and online training. An eclectic, market-responsive approach to increasing workforce skills is the most likely to be successful.
Whatever the specific approaches chosen, helping workers who have lost jobs--whether because of trade or other causes--to find new productive work is good for the economy as well as for the affected workers and their families. Moreover, if workers and their families are less fearful of change, political pressure in favor of trade barriers or other measures that would reduce the flexibility and dynamism of the U.S. economy would be reduced (Kull, 2004).
Conclusion
To sum up, international trade in goods, services, and assets, like other forms of market-based exchange, allows us to transform what we have into what we need or want under increasingly beneficial terms. Trade allows us to enjoy both a more productive economy and higher living standards.Of course, current trading arrangements are far from perfect. Some features of the world trading regime, such as excessive restrictions on trade in services and the uneven protection of intellectual property rights, are both unfair and economically counterproductive. Working through the World Trade Organization or in other venues, we should continue to advocate the elimination of trade distortions and barriers in our trading partners even as we increase the openness of our own economy. We should also work to ensure that both we and our trading partners live up to existing agreements under the World Trade Organization. When trading partners do not meet their obligations, we should vigorously press our case. Ultimately, a freer and more open trading system is in everyone's best interest.
Although expansion of trade makes the U.S. economy stronger, as I have noted today, the broad benefits of trade and the associated economic change may come at a cost to some individuals, firms, and communities. We need to continue to find ways to minimize the pain of dislocation without standing in the way of economic growth and change. Indeed, the willingness to embrace difficult challenges is a defining characteristic of the American people. With our strong institutions, deep capital markets, flexible labor markets, technological leadership, and penchant for entrepreneurship and innovation, no country is better placed than the United States to benefit from increased participation in the global economy. If we resist protectionism and isolationism while working to increase the skills and adaptability of our labor force, the forces of globalization and trade will continue to make our economy stronger and our citizens more prosperous.
References
Acemoglu, Daron, and Joshua Angrist (2001). "How Large Are Human Capital Externalities? Evidence from Compulsory Schooling Laws," in Ben S. Bernanke and Kenneth Rogoff, eds., NBER Macroeconomics Annual. Cambridge, Mass.: MIT Press, pp. 9-59.
Becker, Gary S. (1964). Human Capital: A Theoretical and Empirical Analysis with Special Reference to Education. New York: National Bureau of Economic Research.
Bernanke, Ben S. (2004). "Trade and Jobs," speech delivered at the Distinguished Speaker Series, Fuqua School of Business, Duke University, March 30, http://www.federalreserve.gov/boarddocs/speeches/2004/20040330/default.htm
______ (2006). "Global Economic Integration: What's New and What's Not?" speech delivered at the thirtieth annual economic symposium sponsored by the Federal Reserve Bank of Kansas City, Jackson Hole, Wyo., August 25, http://www.federalreserve.gov/boarddocs/speeches/2006/20060825/default.htm
______ (2007). "The Level and Distribution of Economic Well-Being," speech delivered at the Greater Omaha Chamber of Commerce, February 6, http://www.federalreserve.gov/boarddocs/speeches/2007/20070206/default.htm
Bernard, Andrew B., and J. Bradford Jensen (1999). "Exceptional Exporter Performance: Cause, Effect, or Both?" Journal of International Economics, vol. 47 (February), pp. 1-25.
Bernard, Andrew B., J. Bradford Jensen, and Peter K. Schott (2006). "Trade Costs, Firms, and Productivity," Journal of Monetary Economics, vol. 53 (July), pp. 917-37.
Bhagwati, Jagdish (2004). In Defense of Globalization. New York: Oxford University Press.
Bradford, Scott C., Paul L. E. Grieco, and Gary Clyde Hufbauer (2006). "The Payoff to America from Globalisation," The World Economy, vol. 29 (July), pp. 893-916.
Card, David (1999). "The Causal Effect of Education on Earnings," in Orley Ashenfelter and David Card, eds., Handbook of Labor Economics, vol. 3A. New York: Elsevier, pp. 1801-63.
Cox, Michael, and Richard Alm (2007). "The Best of All Worlds: Globalizing the Knowledge Economy," in Federal Reserve Bank of Dallas, 2006 Annual Report, pp. 3-28.
Davis, Steven, John Haltiwanger, and Scott Schuh (1996). Job Creation and Destruction. Cambridge, Mass.: MIT Press.
Dollar, David, and Aart Kraay (2004). "Trade, Growth, and Poverty," The Economic Journal, vol. 114 (February), pp. F22-F49.
Doms, Mark E., and J. Bradford Jensen (1998). "Comparing Wages, Skills, and Productivity between Domestically and Foreign-Owned Manufacturing Establishments in the United States," in Robert E. Baldwin, Robert E. Lipsey, and J. David Richardson, eds., Geography and Ownership as Bases for Economic Accounting. Chicago: University of Chicago Press.
Easterly, William (2006). The White Man's Burden: Why the West's Efforts to Aid the Rest Have Done So Much Ill and So Little Good. New York: Penguin Press.
Guisepi, Robert A. (2000). "The Stone Age: The General Picture," International World History Project, http://history-world.org/stone_age2.htm (accessed April 13, 2007)
Hummels, David (2006). "Transportation Costs and Trade over Time," in David Hummels, Anthony Venables, Harry Broadman, and John S. Wilson, rapporteurs, Transport and International Trade: Round Table 130. Organisation for Economic Co-operation and Development and European Conference of Ministers of Transport. Paris: OECD.
Institute of International Education (2006). "New Enrollment of Foreign Students in the U.S. Climbs in 2005/06," press release, November 13, http://opendoors.iienetwork.org/?p=89251.
Kletzer, Lori G. (2001). Job Loss from Imports: Measuring the Costs. Washington: Institute for International Economics.
Kletzer, Lori G., and Howard Rosen (2006). "Reforming Unemployment Insurance for the Twenty-First Century Workforce," Hamilton Project Discussion Paper. Washington: Brookings Institution, September.
Kling, Jeffrey R. (2006). "Fundamental Restructuring of Unemployment Insurance: Wage-Loss Insurance and Temporary Earnings Replacement Accounts," Hamilton Project Discussion Paper. Washington: Brookings Institution, September.
Kull, Steven (2004). Americans on Globalization, Trade, and Farm Subsidies , The American Public on International Issues, PIPA/Knowledge Networks Poll, Program on International Policy Attitudes and Knowledge Networks, January 22, www.pipa.org/OnlineReports/Globalization/GlobalTradeFarm_Jan04/GlobalTradeFarm_Jan04_rpt.pdf (900 KB PDF).
Mann, Catherine L. (2003). "Globalization of IT Services and White Collar Jobs: The Next Wave of Productivity Growth," International Economics Policy Briefs PB03-11. Washington: Institute for International Economics, December, www.iie.com/publications/pb/pb03-11.pdf (389 KB PDF).
______ (2004). "Global Sourcing and High-Tech Jobs: Productivity Gains and Policy Challenges," presentation on "White Collar Outsourcing" at the Institute for International Economics, March 11, www.iie.com/publications/papers/mann0304.pdf (138 KB PDF).
______ (2006). Accelerating the Globalization of America: The Role for Information Technology, with Jacob Funk Kirkegaard. Washington: Institute for International Economics.
Topel, Robert (2004). "The Private and Social Values of Education," in Education and Economic Development, proceedings of a conference held at the Federal Reserve Bank of Cleveland, November 18-19, pp. 47-57, www.clevelandfed.org/research/conferences/2004/November/cbook.pdf (891 KB PDF).
Footnotes
1. Hummels (2006). Bernanke (2006) provides a brief history of globalization. Return to text
2. The estimates ranged from $7,000 to $13,000. Return to text
3. Cox and Alm (2007) discuss the benefits of trade in the modern global economy. Return to text
4. Bernard and Jensen (1999) find that exporting firms are more productive than non-exporters. Bernard, Jensen, and Schott (2006) document the tendency of trade to reduce production at low-productivity plants and to increase output at high-productivity plants in the United States, a shift that raises average productivity. Return to text
5. Refer also to Bhagwati (2004). Return to text
6. According to the Bureau of Labor Statistics (BLS), over the past ten years, gross job losses in the United States have averaged about 7.8 million per quarter. Multiplying 7.8 million by 4 suggests that about 31 million U.S. jobs come to an end each year. This figure includes temporary layoffs, seasonal closings, and other short-term job losses; some research suggests that longer-term job losses amount to about half of the total (Davis, Haltiwanger, and Schuh, 1996). Dividing 31 million gross job losses by 2 yields about 16 million long-term job losses each year. Return to text
7. February 2007 is the latest month for which these rate comparisons are available. The data are from the Bureau of Labor Statistics, which has adjusted them to approximate the U.S. definition of unemployment. Return to text
8. The economic importance of physical proximity is the underlying reason that people and businesses are willing to pay high rents and other costs to live in or near major cities, where they can be near large numbers of other people and businesses that have related expertise and interests. Return to text
9. Another type of service in which the United States has a strong export position is higher education. In 2005-06, U.S. institutions of higher learning trained nearly 600,000 foreign students, of whom about half were studying for graduate and professional degrees. Many foreign students who study in the United States spend at least some time here subsequently, adding their skills to those of the domestic workforce (Institute of International Education, 2006). Return to text
10. Mann (2006, pp. 140-41) analyzes changes from 1999 to 2004. Updating the analysis with 2005 data from the Bureau of Labor Statistics does not change these results. Some of the low-wage occupations, such as data entry and word processing, may have lost jobs to automation rather than outsourcing. Return to text
Posted by Mark Thoma on Tuesday, May 1, 2007 at 11:07 AM in Economics, Fed Speeches, International Trade
Permalink TrackBack (1) Comments (54)
The grain of wheat amongst the chaff.
It took him a while to get to the heart of the matter (of dislocated jobs). Maybe now others will understand that in the need to hone skills and competencies, we cannot depend upon the current situation of mediocre secondary schooling (just look at the PISA scores at the OECD, where America does not even figure in the top 10).
Neither can we depend alone upon that first-degree at university, since we may need to assume at least two further professions, for which we need to be trained. Across the gamut, from tradesmen to CEOs, the future of an economically strong America depends upon its ability to school, educate and train its workforce - repeatedly and continuously.
If Americans can believe that the defense of their nation is strategic, then they should see clearly, now, before its too late, that the quality of its workforce is also a strategic necessity that the government should provide. Now, not tomorrow.
We don’t need more guns … we need better brains.
Posted by: Lafayette | Link to comment | May 01, 2007 at 11:35 AM
I appologize... Completely off topic, worth reading..
http://www.salon.com/opinion/kamiya/2007/05/01/bush_defeatists/index.html
Last refuge of the scoundrel
By Gary Kamiya
Salon.com
Best regards,
Econolicious
Posted by: ECONOMISTA NON GRATA | Link to comment | May 01, 2007 at 11:36 AM
I object to this notion that we need 'better brains'.
The problem remains: most people are normal. That is the definition of normal.
So what if there are gains for Ph.D's? A prosperity that is not available to the normal is not a broad based prosperity and to pretend otherwise (this is a criticism of Bernanke, not Lafayette) is to be a craven apologist for the elite. (Harummph!)
It should not have to be a populist, liberal position to care about the future of the American family. But in this climate of Wall Street predation, it is. The Bernanke position is to simply cut off the stability of the middle aged wage earner, with all the effects that has on the family, and substitute job benefits and job security with 'training'. The seriousness of this position can quickly be surmised with a view of the existing 'training' programs: cr*p.
Posted by: dissent | Link to comment | May 01, 2007 at 11:48 AM
As to an education cost:
http://www.nytimes.com/2007/05/01/opinion/01tue3.html?ex=1335672000&en=36b06f5b7d03017b&ei=5090&partner=rssuserland&emc=rss
May 1, 2007
Help, by the Book
The State of Washington is looking out for students and their families by passing a law requiring textbook companies to disclose prices and other relevant information when they market books to college professors in the state. Lawmakers hope that professors who learn the costs upfront will opt for reasonably priced textbooks that cash-strapped students can afford.
This law, along with similar measures pending in several other states, is a response to intense lobbying by student groups, who have complained for years about the bankrupting cost of college textbooks. A 2005 study by the Government Accountability Office found that book costs had nearly tripled over some two decades, thanks in part to pricey but marginally useful CD-ROMs and instructional supplements, as well as the constant issuing of lucrative but little changed new editions — publishing's version of planned obsolescence.
The law is an important first step. But to really drive down costs, colleges and universities around the country will need to embrace creative solutions, like the one on display at the online Connexions system at Rice University.
That content, already in use for several courses at Rice and at other colleges and universities, is generated by a consortium of writers. Online use is free. And a 300-page hardcover electrical-engineering textbook can be printed out for about $25 — roughly one-fifth the cost of a book from a conventional publisher. Other universities should follow Rice's creative lead. Students can use all the help they can get.
Posted by: anne | Link to comment | May 01, 2007 at 12:22 PM
I believe, but must ask, that the cost of books for students in Europe is at least subsidized, and books may even be free. What I am after is federal-state revenue sharing to allow for low or minimal tuition at public colleges-universities.
Posted by: anne | Link to comment | May 01, 2007 at 12:25 PM
" we need better brains."
To accept that statement you have to believe that 50,000 IBMers woke up stupid one day, could not longer do their jobs, and had to be replaced by 50,000 Indians.
To accept that statement you have to believe that 50,000 HPers woke up stupid one day, could not longer do their jobs, and had to be replaced by 50,000 Indians.
Education has nothing to do with it, I have 4 years of grad school and IBM sent my job to India. As my manager fired over the phone she admitted she really didn't understand what I did.
Since that enlightening experience, I have found that if you have experience you are too old to be employable, and if you have education it is irrelevant. If you are in your mid-50s you are not going to get a job in this country.
How an economic system can think this is for the good of the country escapes me. If you check you will find that many of those in the lower participation rate are 2 million men, middle ages, that have never found gainful employment.
To say me need more brains is just dumb. Anyone that has had to call a help desk in India knows there is no comparison between a Dell tech in the US that listens to what you have done and then solves your problem versus an Indian tech that reads a script in a language you cannot understand, and then switches you to marketing to buy more support.
Bill Gates and the rest whine about needing H1Bs. It isn't about brains, it is about cheap. What ever happened to supply and demand? Need more brains, pay for it and they will come.
For example a President declare a race for space. Government competes with private industry for engineers. Pay goes up, supply of engineers goes up. Same with the nursing shortage. Raise the pay and they will come.
Supply and demand still works, it is just people like Gates that don't understand it. He will learn when he finds out Indians will not pay a couple of months pay for a new copy of Vista.
Posted by: me | Link to comment | May 01, 2007 at 12:25 PM
Someone who would cite Ricardo at this late stage is either immune to two hundred years of further economic thinking or is being deliberately disingenuous.
I vote for option two. This admin is full of "faith-based" policies, whether in foreign affairs, trade policies, tax policies or even AIDS prevention. Even Cromwell was more of a realist than these people.
Posted by: robertdfeinman | Link to comment | May 01, 2007 at 12:33 PM
The problem with the animal feed grain products from China is the classic example of trade for profit's sake. We are perhaps the world's largest producer of grain, so why are we importing it from China? China has so many more mouths to feed. Why are they exporting grain products? Oh, I forgot, the product is tainted with melamine. I suppose the producer never thought anybody would figure it out and they'd be able to pocket the profits. Then there's our FDA looking the other way on food permitted into our country and produced within the US, like beef and chicken processing, the contaminated spinach and so on... Somehow, the globalization system without the right government oversight is allowing a fraud to take place on the consumer with deadly consequences. Maybe the Fed should stick to their day job of controlling inflation if they can.
Posted by: ljm | Link to comment | May 01, 2007 at 01:23 PM
You've understood nothing.
Bernanke wrote in his article that dislocation was affecting mostly those at the bottom of the food chain. I had addressed my comment to this particular class of un-/low-skilled worker. They need substantial retraining.
Not you. Get out, find yourself another job. You have a diploma, so it is likely that you have qualifications still sought after in the US.
You don't even remotely compare with most of the individuals whose jobs are being dislocated to some factory in rural China. Consider yourself lucky and stop complaining.
Posted by: Lafayette | Link to comment | May 01, 2007 at 02:31 PM
"Consider yourself lucky and stop complaining."
A friend of mine just got lucky and got a job - after being unemployed for 3 years. He has both a B.S. in computer science and and masters in accounting. He was one of the most dedicated interviewers I know, in that he didn't get discouraged.
One of my more recent jobs paid a third my former going rate.
Another recent job brought me in to fill in a skills gap in an Indian outsourcing firm, then let me go. That took all of two weeks.
"Consider yourself lucky and stop complaining."
I think you'd be better off recognizing that you are being abused by the corporatocracy and start rioting!
Posted by: dissent | Link to comment | May 01, 2007 at 03:09 PM
Lafayette,
"Bernanke wrote in his article that dislocation was affecting mostly those at the bottom of the food chain. "
But Bernanke is wrong. The jobs that went to China left long ago. The jobs that are leaving now are going to India and Eastern Europe, and generally require college degrees (programming, accounting, radiology, etc). The idea that 'retraining' will help in this context is ludicrous - exactly how am I going to be able to go back to school for six years, to replace my master's degree with another in a new field ? I have children and a mortgage to support. It's a pity I believed the meliorists and their artless prattle of 'symbolic analysts' back in the 90s.
me,
"Same with the nursing shortage. Raise the pay and they will come."
It seems to me the problem here is slightly different - an experienced nurse can earn way more in practice than by teaching. The shortage of teachers means the competition for acceptance into nursing training courses is fierce, thousands of people competing for hundreds of spots. I know a number of displaced IT workers who've tried for nursing or physician assistant courses, but weren't able to win a place.
However I do agree with your main thesis - there isn't any shortage of
software engineers, only a shortage of money that companies are willing to pay for Americans.
Posted by: Doug K | Link to comment | May 01, 2007 at 03:44 PM
"I expect this will convert all you doubters into enthusiastic supporters of the free trade agenda"
Sorry, Mark.
I just saw the film, Bordertown, which made me even less enthusiastic than before. The film wasn't that good, but a lot more convincing than Bernanke (and Jennifer Lopez is a lot easier to look at).
Seriously, we also need to doubt that free trade is always that beneficial on the other side of the border or the pond.
Posted by: Farrar Richardson | Link to comment | May 01, 2007 at 04:41 PM
"Not you. Get out, find yourself another job. You have a diploma, so it is likely that you have qualifications still sought after in the US.
You don't know what you are talking about. Atlanta has 19% fewer tech jobs today than in 2001. A degree doesn't mean squat.
Posted by: me | Link to comment | May 01, 2007 at 06:20 PM
ben
is directing this at the free market choir
so cut him some slack
he fired a shot across the chinese bow
he's " being deliberately disingenuous"
but those who can view this
from the gallery (laff)
like the fond claim
that there will always be just rewards
for merit
such confirmations
console the universally well intended
but calvinist character driven soul
Posted by: paine | Link to comment | May 01, 2007 at 06:46 PM
anne: "I believe, but must ask, that the cost of books for students in Europe is at least subsidized, and books may even be free."
Not to my knowledge. The N college library copies can serve (about) N students at a time, when you face the empty shelf you can either forgo the book or pony up.
Posted by: cm | Link to comment | May 01, 2007 at 07:42 PM
me: "[Gates] will learn when he finds out Indians will not pay a couple of months pay for a new copy of Vista."
Dunno about Gates, but somebody seems to have gotten the memo -- to quote from Vista: Too Pricey for Emerging Asia? (Business Week):
Posted by: cm | Link to comment | May 01, 2007 at 07:52 PM
Lafayette: "You've understood nothing."
And you haven't listened.
Posted by: | Link to comment | May 01, 2007 at 07:55 PM
That was me, Lafayette.
Posted by: cm | Link to comment | May 01, 2007 at 07:55 PM
me: Based on past conversations with Lafayette, he appears to be of the opinion that many of those who don't find a job are disregarding jobs that are "below them" or below their aspirations. Perhaps you should interpret his remark that way.
Posted by: cm | Link to comment | May 01, 2007 at 08:05 PM
paine: I think you nailed it, it all comes down to "hard work is for others" systems of belief bullshit.
Posted by: cm | Link to comment | May 01, 2007 at 08:08 PM
thank god for innnovation:
my tax dollars at work:
http://www.engadget.com/search/?q=pain+gun&submit=Go
That'll keep the losers of globalization off of my doorstep begging for food!
Posted by: ninjaplease | Link to comment | May 01, 2007 at 09:27 PM
Thank you, CM. All sorts of college-university related costs are broadly subsidized, including of course tuition, but not books in the few countries I have been told about so far; Ireland, Britain, Italy, Switzerland. Also, not in Japan. I am interested in Germany and Spain and the Nordics....
Please set down any specific country to eliminate, if there is time. Tuition though is the more important cost to keep minimal.
Posted by: anne | Link to comment | May 01, 2007 at 09:34 PM
It's interesting to see that a whole range of solutions to help unskilled labor have been proposed except the one that would make the largest difference, curtailing illegal immigration. As someone above stated, it's about supply and demand of labor. Without 20 million additional illegal aliens fighting for low wage jobs, wages would necessarily rise and it would be easier for the under-educated poor to find a job. Before the usual people go berserk, let me point out that the United States already welcomes the largest number of immigrants in the world, second place isn't even close. We have every right to allow only as many immigrants that our country can handle at one time, and to choose the makeup of those immigrants as not to hurt our current residents. Those in favor of a living wage and helping the poor should be 100% behind me. The United States is doing all it can to make the American Dream available to everyone in the world, but we can only handle only so many at once without destroying the Dream for everyone else.
Posted by: BiJian Feng | Link to comment | May 01, 2007 at 10:59 PM
Constant inflation changes the way trade affects different groups.
Under a constant inflation policy, to derive benefits from trade a person's income would have to rise faster than inflation. Some groups therefore derive no benefit at all from trade. Fixed income retirees would be a familiar example. These groups would only benefit if trade efficiencies were allowed to reduce the general cost of living. Even CPI adjusted pensions (e.g., Social Security) derive no benefit from trade.
Posted by: Outside the Box | Link to comment | May 01, 2007 at 11:53 PM
No where in the world -- in the US or Europe or Australia -- has "curtailing" made any real impact whatsoever. The only difference amongst these regions is the manner in which the phenomenon is felt.
Employing Draconian measures simply exacerbates matters. If the Mexicans can't come into America to pick your lettuce/grapes or pick up your garbage ... are you going to do it? I didn't think so ...
Such menial jobs are not any longer wanted by "real men" in America. So, we leave them to the Latinos. (And that applies to Europe as well. Just change the word Latino for Muslim.)
Which is why the best solution is to institute selected immigration that permits legal entry to those with the needed skills - and whether they become permanent residents or not depends upon further rules.
If you leave an authorized inlet open, people will be induced to take it. Rather than all rushing for the unauthorized entryway. That procedure exists for skilled workers (for Silicon Valley), so why not extend it to unskilled workers. But, that will require more policing.
The matter is complex. The primary reason for employing illegal immigrants is typically because they are cheaper. So, if that is the reason, then why not employ them in Mexico? That's a solution, but for local-work (gardening, agriculture) there must be some other alternative. And, that exists - it's called a legal entry visa for work.
All it takes is the will of the government to implement the system, and crack down hardest on those who employ the immigrants (typically at slave wages).
Posted by: Lafayette | Link to comment | May 02, 2007 at 12:08 AM
anne: That content, already in use for several courses at Rice and at other colleges and universities, is generated by a consortium of writers. Online use is free. And a 300-page hardcover electrical-engineering textbook can be printed out for about $25
And, why not the "electronic book", that could be downloaded and read on a "book size" LCD-tablet. This is well within the means of present technology and at an affordable price. The cost could be a tenth of that of a hard-cover book.
At least two electronic book formats exist (that I know of). We need only develop A Standard Format ... a job that the Department of Education can do easily enough. The content of most books, since about a quarter of a century, are held electronically in a file format by the editors.
All we need do is "decide to decide" about how we will control costs and assure that ALL students are given the opportunity for as high a level of education as their talents permit.
Why is this not happening? Guess. (The publishing companies know well that their juicy profits on hard-cover educational books will plummet.)
Posted by: Lafayette | Link to comment | May 02, 2007 at 12:34 AM
You may have a grain of truth, dissent. Yesterday was a holiday in most of Europe ... a paid holiday.
Here are its origins, from wikipedia:
These people died protesting working conditions, more than a hundred years ago. And, we've replaced them with a ineffectual modern variety of protest ... blogs.
American unions are feeble compared to the European variety. Consider this: Less than 4% of the French workforce is represented by union membership. But, the influence of major unions in France is ginormous.
People with degrees think that they don't need a union. Nothing could be further from the truth. They are really, truly on their own when facing the monolithic machinery of any major corporation's Personnel Department, doing the bidding of top management.
I can't imagine what happened to unionism in America, but as an economic force it weighs lightly and as a political force it is practically non-existent. (Perhaps the teachers' union being a singular exception ... and, unfortunately, for all the wrong reasons.)
Posted by: Lafayette | Link to comment | May 02, 2007 at 01:04 AM
Some time ago I read that the French government mandates that companies spend 2% of their profits training and updating their employees' skills or lose that 2% to the tax man.
Here in the United States because of greater employee job mobility employers are loath to spend on job skills training since the money they invest in personal might soon find its way to to another company.
It seems to me that our approach would leads to greater expenses for the employees along with lower or delayed productivity.
Posted by: wjd123 | Link to comment | May 02, 2007 at 02:43 AM
Most of the money spent on training, whether it be in France or the US Govt. programs here, are a waste of money. What are you going to teach? How to use a computer? The worker better already know.
What companies want are smart people who have initiative. A smart person can learn whatever is needed quickly and adapt to the situation. The willingness to learn and make decisions are also important. No amount of training can prepare someone for his next job if that job is a decent paying one. My friend works for Countrywide in their operations department. His job is to execute repurchase agreements and make sure the trades the traders make go through (ie. the money or security arrives and is transfered to where it needs to go). Near the close of the FED, he has to determine if the company has any extra cash left and find a place to invest overnight at the highest rate possible.
He received C's and B's throughout college (UCSD) and doesn't sound all that smart when you talk to him, but he has the ability to learn quickly, understand complex processes, and has the drive to start company projects on his own, including one to simply the operations procedure. He says there are people who just aren't able to do the job well no matter how much you train or teach them. What they need is to UNDERSTAND the process and WHY something has to be done so that they can figure out what to do in case something goes wrong, which happens every day. Some people cannot do more than textbook executions, any change at all and they freeze up. No amount of training can help.
More importantly, what kind of pre-training can help someone prepare for the job above? Most jobs are pretty specific and can't be taught beforehand anyway, so these job training programs are a waste of money because they can't help a person who doesn't know how to use a computer find a decent job. There's no way that person would be hired and survive the evaluation period. And those with ability can adapt on their own and already has basic skills. Worker training and such sounds impressive, but you really should look into what it actually means and ask how does this apply to the real world and is this useful at all? Most of the time, it's just a bunch of pretty words.
Posted by: BiJian Feng | Link to comment | May 02, 2007 at 04:23 AM
BiJian Feng,
I would think that updating your skills on the job would be focused a lot more on specifics than updating them by going back to school.
Also, besides saving you money, updating your skills on the job allows for more time with your family.
Posted by: wjd123 | Link to comment | May 02, 2007 at 07:04 AM
I’m very disappointed that Ben Bernanke, who I have tremendous respect for, fell into not one, but three very easy traps for those trying to frame the trade debate.
First, what’s with the name calling? Highly-skilled American workers and businesses are not "economic isolationists" simply because trying to sell their products. They face (1) competitors who are unfairly and illegally subsidized through currency manipulation and other means, (2) illegal barriers to selling their goods abroad, or in many cases, both.
They are not seeking protection or isolation. They are desperately calling for accountability and the opportunity to compete in a global marketplace. When American manufacturers follow the rules and their competitors don’t, that’s not free trade—it’s flawed trade.
Second, when framing the trade debate, it’s important to draw on a variety of sources of information from different perspectives. One look at the footnotes sections of Bernanke's speech demonstrates that his mind was already made up.
There really is a serious academic and economic debate about the costs and benefits of globalization and trade; that debate was not reflected in any way in his speech. Many distinguished scholars, practitioners, policymakers, and financial and business leaders have raised doubts about some of our current policies.
Third, avoid using overstated estimates, such as those included in the speech on the “consumer effects” of free trade. We’ve lost more than 3.2 million manufacturing jobs, racked up a $764 billion trade deficit and accumulated a running current account debt that places a dangerous drag on our GDP. The next generation will bear these enormous costs if we don’t make dramatic changes.
The very modest “consumer effects” that result from many kinds of illegally dumped imports are more than offset by the loss of income, business activity and profits suffered by domestic manufacturers.
Mr. Bernanke, we need to have an honest debate about whether or not current trade rules are really working in the global economy to the benefit of America. Resorting to distortions and mischaracterizations only makes finding a solution that works for American workers and companies more difficult.
Posted by: ManufactureThis | Link to comment | May 02, 2007 at 07:32 AM
"me: Based on past conversations with Lafayette, he appears to be of the opinion that many of those who don't find a job are disregarding jobs that are "below them" or below their aspirations. Perhaps you should interpret his remark that way."
So he thinks I should have taken a contractor editor position at Lockheed for $30,000, with 4 years of grad school, working alongside Lockheed writers making $75,000 and benefits and pension.?
In that case he is right. I am not going to work for less than half of what I did earn and no benefits. I have an investment in education and experience and will not give it away. Food, gas, healthcare have not dropped 50% so I will not work for 50%. Read how great the market is for college grads and I should work for half?
I was drafted during the Viet Nam war so my sacrificing is over. If US companies can only invest and hire offshore, then I invest offshore (without the US middleman) and I buy offshore.
Posted by: me | Link to comment | May 02, 2007 at 08:46 AM
Let me count the ways that this is not true when it comes to job creation.
Most jobs are routine. Which means more jobs on the chopping block for outsourcing.
Highly productive industries aren't labor intensive. They create fewer jobs.
Price-factor equalization works against high wage countries.
Exports add to domestic cost for everyone. Subtract that from the higher wages of export jobs.
Open border policies that go hand and hand with free trade speed up the downward trend in wages for high wage countries.
Here is a specific example of China paying for technology transfers which helps quicken the day when Americas value added advantage is gone. The excerpt is from Steven Pearlstein's "From Old World to Real World."
http://www.washingtonpost.com/wp-dyn/content/article/2007/04/24/AR2007042402187.html
The old world of comparative advantage says accept China's subsidies and invest the savings elsewhere. Really, how many value added jobs will that cost us.
Posted by: wjd123 | Link to comment | May 02, 2007 at 08:55 AM
Big Ben should spend a day or two in Michigan.
He forgot to add..... "but they get to shop at Wal-Mart!"
Posted by: save_the-rustbelt | Link to comment | May 02, 2007 at 10:20 AM
My approach to illegal immigration would be three fold:
1. Heavy employer sanctions on the hiring of illegals, phased in over 3 years.
2. Legal immigration of unskilled workers by quota directly tied to wage and employment of American unskilled workers. This country is already esp racist towards Af-Am men, in particular. Until the employment rate of this group goes up and wages also NO LEGAL IMMIGRATION OF UNSKILLED WORKERS. With that as an incentive, you'd see alot of employers hiring Af-Am men, that is the best domestic anti-poverty program.
3. Heavy investment in and development of Mexico. U.S. playing a strong leadership role to insure that targeted moneys are spent appropriately. Tear up the NAFTA provisions that destroy Mexican livelihoods. We should invest in Mexico as they do in the E.U. with new members.
Posted by: dissent | Link to comment | May 02, 2007 at 11:58 AM
I agree with the above points except for #3. The US already gives aid to Mexico and private companies like GM already invest there. Any more investment without market reasons would be a waste as products produced by those investments could not be competitive and the factory would have to close down anyway in the absence of profits.
More broadly, I don't see why people rail against globalization (which is unstoppable) and free trade, yet want an open border. For protectionists, the border should be seen as a barrier that stops job losses. We all know there are jobs that just can't be exported, mostly service jobs like McDonalds worker or barber, yet those jobs are vulnerable to unstemmed illegal immigration. How can a protectionist who says he wants to help the American worker be for illegal immigration which is a net negative drain on our finances given the social services consumed and that a large portion of wages go back to Mexico or the home country of the illegal? It doesn't make any sense.
Posted by: BiJian Feng | Link to comment | May 02, 2007 at 12:47 PM
anne: I studied in Germany, and I wasn't aware of subsidies for textbooks. That was before 2000. I don't think benefits have improved since. Of course that I don't know of any subsidies doesn't prove there are none. I qualified for a student loan program with partial forgiveness, but a good number of people qualify for that. There are a number of tax deductions for education expenses, and there may be some programs for certain low-income people (accounting for the fact that students are means-tested against parents' incomes and wealth even if they are of age), but I cannot give you details on that.
Posted by: cm | Link to comment | May 02, 2007 at 09:59 PM
BiJian Feng: "What companies want are smart people who have initiative. A smart person can learn whatever is needed quickly and adapt to the situation."
Alas, I see little evidence for that where I work and in my circle, which can be approximately described as "mature industry". What employers want here is highly experienced people with specific backgrounds, who are preferrably willing to work 1-2 notches below what their credentials indicate.
Posted by: | Link to comment | May 02, 2007 at 10:07 PM
Above comment is mine.
Posted by: cm | Link to comment | May 02, 2007 at 10:14 PM
Such subsidies exist in France, right up through high-school - and it covers both books and materials. For which, France has the same mediocre PISA score as the US as regards secondary school achievement.
I doubt these subventions exists in universities, as most university professors teach off their own notes.
Meaning it takes more than a school-book subvention to improve educational standards. It is a matter of the quality of teachers, I suggest. Of course, most teacher unions, in France and the US, genuflect at the same excuse: “We need more teachers!”
Perhaps we do. But, we also need better teachers.
Posted by: Lafayette | Link to comment | May 03, 2007 at 12:02 AM
This is precisely what Bernanke is saying. The dislocation hits hardest the un-/semi-skilled workforce … where the jobs are routine and therefore highly “dislocatable” to a cheaper cost climate.
Quite right, but they create better paying jobs. You can’t have your cake and eat it.
If we are looking to a one-for-one offset in the job destruction/creation process, we must go up the skills ladder meaning fewer people per industrial process, but more industrial processes. Bringing unskilled workers up the competence ladder will require intensive training programs. Don’t expect industry to assume this cost. If industry wont, who must? One guess ..
(Also, I maintain that if we automate heavily a good many industrial processes (particularly in electronics), given the transport costs of foreign competitive equivalent products, we can save a good deal of home-grown industrial production. But, automation processes require very favourable fiscal amortization policies for companies to adopt them.)
Bollocks. You do not have an objective view of what we can expect people to do or not do in terms of learning.
For skills enhancement, they need specialized programs of training – and not just “cheapo” on-the-job training. The necessary skills are not like daddy teaching you how to drive a car.
Which is only half the problem. Many are not prepared to learn. Our laxness has let an entire generation out of secondary school without the slightest qualification in skills and mindset that "life owes them a living".
Learning is itself a skill. It is inculcated at a very young age. Miss the opportunity when the moment is ripe, from birth to about 10 years of age, and we condemn that person to a life of mediocrity (and low-paying service jobs).
The notion that "we are all achievers if we only try hard" is pap for the masses - to sell self-help books. Look at the work done in pedagogical studies - it will tell that the learning process is staged throughout the life of a person, but is most critical at the very youngest age.
Posted by: Lafayette | Link to comment | May 03, 2007 at 12:29 AM
Perhaps one should - until a better argument supersedes it.
All too many people graduate from university with an exaggerated idea of their “worth”. This is more a male deformation than female, but the females are getting the infection as well.
Our motivations/aspirations are indeed important. More important, however, is the reality of the job market at any given moment. And, at this moment, it is not the greatest – either in Europe or the US. (But, more so Europe.)
So, our aspirations require reformulation to correspond with what the job market offers. Which means this: We do jobs that are below our supposed talent level.
We should never think that – because we have a degree – work perhaps more tedious or more menial than our degree-level is “below us”. All work is noble, just in different ways.
And, yes, I have seen numerous instances where people, on the dole, simply avoid a job because their total income (welfare money plus working at undeclared part-time jobs) is not that much less remuneration … so why take it? In this instance, it is a matter purely of comparative financial calculation. Which means, to me, these people ain’t stupid.
In France, the state job reporting center, that aggregates (within a region from companies/institutions) anywhere from 2 to 5000 job postings per week. And yet, the unemployment rate remains stubbornly at above 9%. If you’ve got an explanation of that phenomenon, cm, I’d like to read it.
Posted by: Lafayette | Link to comment | May 03, 2007 at 12:46 AM
Lafayette: Not to be disrespectful, but it sounds like you are pontificating from a position where you perceive yourself as reasonably secure (as secure as it gets these days only perhaps, but even so). Would you honestly be prepared to take your own medicine?
>> "The dislocation hits hardest the un-/semi-skilled workforce … where the jobs are routine [...] If we are looking to a one-for-one offset in the job destruction/creation process, we must go up the skills ladder [...]"
It is a fallacy to assume that "routine" and "un/semi-skilled" are the same. "Routine" means, by Merriam-Webster's definition, "habitual or mechanical performance of an established procedure" -- the important part being that routine is not a concept of any (bounded) skill level, but one of established procedure.
I can tell you for a fact that there are many routine jobs in software development, which require substantial skills and experience to carry out competently, completely, and within a certain schedule, but which are nonetheless nothing more than application of known principles to known problem classes.
Which brings us to the next point, routine is also a function of time -- as any field matures and paradigms get established, more and more of what earlier used to be innovative and creative becomes routine. That's called progress.
And there are quite a number of fields where the bar of "routine" is meanwhile so high that it is beyond reasonable retraining efforts.
That's also related to tech and other business offshoring -- the "routine" jobs (and then some) go to 20-somethings abroad who are coming out of grad school in the respective fields. Are you suggesting 40+ old fork lift operators should get a Comp. Sci. or Biotech degree to partake in the "skilled" jobs?
The skills-through-retraining rhetoric doesn't go very far.
Posted by: cm | Link to comment | May 03, 2007 at 08:51 AM
Lafayette: "And, yes, I have seen numerous instances where people, on the dole, simply avoid a job because their total income (welfare money plus working at undeclared part-time jobs) is not that much less remuneration … so why take it? In this instance, it is a matter purely of comparative financial calculation."
Which, to reiterate this without disputing your claim (other than holding against it that among the unemployed who I used I don't know of any cases of illegal labor), is a large part of the purpose of welfare and unemployment benefits -- not to encourage illegal labor which is caused by other things, but provide a floor under wages by making below-welfare paid jobs unworthwhile to benefits receivers.
Posted by: cm | Link to comment | May 03, 2007 at 08:56 AM
"who I used to know", of course.
Posted by: cm | Link to comment | May 03, 2007 at 08:57 AM
Lafayette: In Comp. Sci., there is a good deal of e.g. data structures and algorithms which were hot research some 20+ years ago, and for the lack of in-depth knowledge of which no college graduate will pass muster in an interview for a software engineer position today. That's just the nature of progress -- commodification of skills. Which is arguably the point of broad-based education.
Posted by: cm | Link to comment | May 03, 2007 at 09:05 AM
Lafayette,
I wasn't trying to have my cake and eat it too, I was trying to show how many more jobs would by open to outsourcing since most jobs are routine. Even skilled jobs are becoming more routine. Intel for instance had no trouble moving its production plant to China.
If a doctor wants to know what is happening with a patients heart the doctor can give him or her a phone that can read his or her pacemaker.
There is no reason the patient couldn't phone the reading in to India and have a specialists there look at the readings and send the doctor the ones that need his immediate attention.
In time the specialists could be replaced by a machine that will do the diagnosis which in turn will be tested by another machine every six months to see if it is functioning properly.
Assembling the machines is routine work, fixing it with the help of other machines is coming closer to routine.
So if routine jobs are those that get outsources one will have to climb the skills ladder even higher to be safe. As factor-price equalization climbs that same latter the people on the bottom rungs will get cheaper services because the people on the higher rungs will be getting lower wages.
This wasn't my remark but that of BiJian Feng. You are arguing with the wrong person.
I found your remarks about people on the dole in France interesting because the French can't lose their medical coverage if they go back to work or take a new job. This isn't the same for Americans on Medicaid. If you change the idea of being "smart" to "responsible" on this issue, an American with kids could be said to be acting responsible when they don't accept a job in order to keep their medical coverage, but a French man or woman couldn't use this reasoning.
Posted by: wjd123 | Link to comment | May 03, 2007 at 01:02 PM
Oh, bollocks, I'll attribute posts to whomever I like - both rightly and wrongly.
Disassociate the poster from the argument, particularly in a blog where it is difficult enough to keep track of who says what. It is the debate that counts, not the debater!
Sorry, but the distinction being smart or stupid is of no consequence whatsoever in terms of social justice. Sickness, in fact, does make distinctions. The poor are statistically more sick more often than the richer classes and their life spans are shorter. Their nutrition is very different.
Social justice (in American terms) is, to my mind, somehow making Americans understand that what they should expect from their government is more than just defense, secondary-school education, Medicare/Medicaid, laws and a system of justice, etc., etc., etc.
A nation must be concerned about sharing the wealth pie, not equally but fairly. By what moral sense can you justify the permanent damage to personal lives that Katrina imposed upon New Orleans blacks/whites. I can assure you that when a town is inundated in France or Italy, and this happens regularly, ALL EFFORTS are made to repair the lives of those affected. And it is the state that is responsible for reparations – both physical, mental and property-wise.
(America can expend billions upon billions to play silly games over in the sandbox, but dither forever over hundreds of millions necessary in Louisiana. And, this is only one example – but perhaps the most perverse.)
Why is it so difficult to get this simple notion understood to Americans? Are Americans and Europeans living on different planets? Yes, that is the obvious conclusion. The set of social values is so very different between the two.
Posted by: Lafayette | Link to comment | May 04, 2007 at 01:21 AM
The French socialist candidate has proposed in her platform to practically double the minimum wage. This is only one indication of the stupidity of French socialists who haven’t the foggiest notion of how a modern economy functions.
The consequence of this measure will be to worsen the plight of unskilled French labor. That increase in labor cost, which must be recuperated in the pricing of products/services, will make their jobs non-competitive. The measure will effectively INCREASE unemployment, as French companies seek more avidly to produce (even some services) from other less expensive countries. (And, the same socialist candidate proposes to “punish” those companies with fines if they dislocate.)
This is what the Idiot Left in France thinks is “social protection”. The proposal is beyond belief … but actively acclaimed by the 40 to 45% of electors that are expected to vote for her.
And, cm wants to put a “floor” under labor wages? For what, to see automated even unskilled labor service jobs out of existence? Unbelievable.
No, keep the minimum wage as it is - or notch it up slightly. BUT, allow those receiving it to access housing subventions and other public services on which they would have spent otherwise their minimum wage - thereby extending their consumer purchasing power. (No, I don't mean that the government pays ALL the rent - but a lease/purchase agreement by which unskilled labor can obtain "affordable housing" that, in time, becomes their personal property.)
Posted by: Lafayette | Link to comment | May 04, 2007 at 01:50 AM
Lafayette: Not only are you sloppy with attribution and admit you don't care, you are also attributing strawman arguments. Why don't you respond to my other comment about skills? I'm almost sorry providing an opportunity to exercise your pet peeve.
Posted by: cm | Link to comment | May 04, 2007 at 08:53 AM
Borrrinnngg. Very boring.
Answer the question posed:
What other question about skills? Repeat it.
Posted by: Lafayette | Link to comment | May 04, 2007 at 10:19 AM
Lafayette: "Make an effort" reading the comments. It's all there. And you may want to use some manners too.
Posted by: cm | Link to comment | May 04, 2007 at 09:43 PM
You are tiresome, cm.
EOD
Posted by: Lafayette | Link to comment | May 05, 2007 at 02:53 AM
A member of Congress asked Ben Bernanke what was the best way for consumers to use any extra money they may get through a economic stimulus package. He said it would be best if consumers spent the money on products that are domestically made.
This demonstrates the fact that any extra money spent at our retail outlets quickly fans out to the places where the products are made. Most products are made in far away places. So the money goes there and does not stay here to grow or recyle our own economy.
Free Trade is not trade as historically defined and practiced. Today it is based on moving production and factories from place to place based on the cheapest labor markets of the world. It has created a working poor class in the USA. It ignored the underclass living in a silent depression as exposed by Hurricane Katrina in New Orleans. And the impoverished workers making the products outside the USA can not even make enough to afford the products they make let alone have anything extra to spend for anything the USA has left to export.
The USA has gone through the most massive dislocation of jobs in US history with millions losing their jobs - and now their homes with foreclosures breaking all records.
This comes after personal and business bankruptcies broke all records. Still the Free Traders call for more even though Free Trade now has a long history of failures.
A notice in our church bulletin says it all -
Success is reaching Social Security age before having to declare bankruptcy. This is the state of our nation and finally Ben Bernanke sums it all up with saying the best way to restore our economy is to buy domestically made products. See review of The Age of Turbulence by Alan Greenspan at http://www.bizarrepolitics.com and http://tapsearch.com/flatworld/
Posted by: Ray Tapajna | Link to comment | January 18, 2008 at 08:28 AM