Estimating the impact of trade and offshoring on American workers


The policies and practices that result in American jobs being moved abroad, and in huge amounts of cheaper goods being imported, continue to be the subject of controversy. Though technological change has also played a strong role in the upheaval, over the two-decade period leading up to the early 2000s some 6 million U.S. manufacturing jobs were lost, many because of the offshoring of business functions to cheaper labor markets by American companies. How this has affected wages for the U.S. manufacturing jobs that remain, however, is the subject of ongoing debate.

A 2011 World Bank study, “Estimating the Impact of Trade and Offshoring on American Workers Using the Current Population Surveys,” examines the effects of globalization pressures on wages and employment opportunities for American workers between 1982 and 2002. Noting that “many models of trade posit that workers can move in a costless manner to new jobs in the face of pressure from foreign labor,” the researchers challenge such ideas.

The study’s findings include:

  • There were “large and significant wage declines among workers forced to leave manufacturing, and the wage decline is particularly pronounced for those who are forced to switch occupations.”
  • Small wage increases due to globalization are registered at the industry level in manufacturing, but this does not show how globalization impacts specific jobs: “The downward pressure on wages due to import competition and offshoring has been overlooked because it operates between rather than within sectors. Our results indicate that a ten percent increase in occupation-specific import competition is associated with a 2.9 percent decline in real wages for workers who perform routine tasks.”
  • Due to layoffs within certain manufacturing industries, many workers are left unemployed, switch to another manufacturing job or switch to the service industry. There were estimated “wage losses of 2% to 4% among workers leaving manufacturing and an additional 4% to 11% wage loss among workers who also switch occupations.”
  • The loss or gain of jobs in the U.S. depends on the location to which jobs have been move abroad: “A one-percent increase in employment in low-income countries reduces domestic employment by 0.023% while a 1% increase in employment in [higher] income countries increases domestic employment by 0.076%.”
  • The U.S. could mitigate the negative effects of offshoring by increasing exports. The study finds that every “1% increase in export shares is associated with a 1% increase in wages while a 1% increase in import penetration is associated with a negative 0.44% decline in wages.”

The researchers conclude that despite the popular belief that displaced workers can move without cost into other lines of work, there are “large and significant wage declines among workers forced to leave manufacturing [or] switch occupations.”

Tags: economy, campaign issue

Last updated: August 10, 2011


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