Globalization and Inequality

“Globalization has brought huge overall benefits, but earnings for most U.S. workers -- even those with college degrees -- have been falling recently; inequality is greater now than at any other time in the last 70 years. Whatever the cause, the result has been a surge in protectionism. To save globalization, policymakers must spread its gains more widely. The best way to do that is by redistributing income.
…
Less than four percent of workers were in educational groups that enjoyed increases in mean real money earnings from 2000 to 2005; mean real money earnings rose for workers with doctorates and professional graduate degrees and fell for all others. In contrast to in earlier decades, today it is not just those at the bottom of the skill ladder who are hurting. Even college graduates and workers with nonprofessional master's degrees saw their mean real money earnings decline. By some measures, inequality in the United States ii greater today than at any time since the 1920s.”

Kenneth F. Scheve and Matthew J. Slaughter, “A New Deal for Globalization”, Foreign Affairs (July/August 2007).

http://www.foreignaffairs.org/20070701faessay86403/kenneth-f-scheve-matthew-j-slaughter/a-new-deal-for-globalization.html


Kenneth F. Scheve is Professor of Political Science at Yale University. Matthew J. Slaughter is Professor of Economics at the Tuck School of Business at Dartmouth and Adjunct Senior Fellow for Business and Globalization at the Council on Foreign Relations. He served on the White House Council of Economic Advisers from 2005 to 2007.

Let me mention first that globalization has been a great boon to the poor of the world. Incomes of the abject poor in those countries that have opened their economies to the rest of the world (think China, India, and many other countries) have been rising at an
unprecedented rate for over two decades. It is utter nonsense to say that globalization is a cause of global inequality. It is the strongest force operating to reduce disparities among countries.

This article wisely makes no claim that globalization is harming developing countries. Rather, it looks at what is happening in the United States. Even accepting its underlying statistics, its conclusions are questionable.

Note the words it uses: “mean real money earnings”. Money earnings do not include such items as health care benefits, social insurance contributions for Social Security and unemployment funds, pensions contributions, shorter working hours, increased vacation benefits, and other non-wage benefits paid to workers. In other words, it excludes precisely those items in the total compensation of workers that are growing fastest.

Frankly, I doubt whether in the aggregate there has been much change in the distribution of income in the United States over the course of the past few decades. Some economists argue that any increase in income disparities are “desired” in the sense that some people like to work 70 to 80 hours a week while other prefer to limit their time at work. Certainly, one cannot “prove it” (whatever that means) using data on “mean real money earnings”. And one could not “prove it” without considering the impact that technological advance and public policies directed against the poor might have had. The latter include land zoning restrictions that has raised the price of housing to the poor, minimum wages that prevented the rural poor from working in small and medium-size towns, and unrestricted immigration of low-wage workers that compete with native unskilled workers, among many other policies. Add to this an aging population, which brings with it further changes that lead to inequalities in income completely unrelated to economic factors.

The authors are right to say that we face a surge in protectionism. Yes, we do. And we do because articles like this completely misstate the problem before the U.S. economy: It is not globalization alone but a host of factors -- domestic as well as foreign, in our control and out of our control -- that are transforming the U.S. economy and at times the policies we pursue make things worse for the most vulnerable among us.

This is a recycled Tdj.