Since 1922, the Chicago Council served the important, independent, non-partisan function of helping educate people in the Midwest about the importance of global engagement. It has been a great privilege for me to serve on the Council Board for 23 years because I believe so strongly in this mission.
Tonight, I will speak about international trade – a topic that is frequently in the headlines. Having served as Under Secretary of Labor back in the 1970’s and as Deputy U.S. Trade Representative in the early 1990’s, I approach the topic of international trade with more gray hair and a broader context than most economists.
I have been troubled by the way in which our society is reacting to labor market concerns and turning against trade. My message tonight is that these concerns reflect broader trends in our society that go way beyond imports and outsourcing. Before turning to those concerns, we should note why this matters.
The benefits of international trade are well known. If firms in another country make products like shoes or clothing at lower cost than US firms, then importing those products makes consumers better off. We can and most likely will spend the money that we save. This is just like getting a pay raise except it comes in the form of lower prices. And the extra money we spend elsewhere increases employment in those sectors as it ripples through the economy. So, the benefits of this pay raise are significant and widespread.
Of course, some firms and workers producing clothing and shoes in the United States are hurt because of the competition. Worst case, the companies may be forced out of business and the workers may lose their jobs. Although those hurt are a very small part of our labor force, they are quite easily identified especially compared to the usually unnoticed but very large number of people who get the pay raise from lower prices.
So, society overall benefits from the lower prices and more choice but what about those who are hurt significantly along the way? Interestingly, the American people seem to understand the benefits and costs. Public opinion surveys over many years, including our Chicago Council surveys, repeatedly show that our citizens overwhelmingly agree that trade is beneficial to consumers, business firms, and the U.S. economy. However, Americans express concern when asked about the impact on job security and job creation.
As I mentioned earlier, opposition to international trade relates to a number of broader trends in our society. The most important is the pace of technological change that often reduces the number of workers needed. Manufacturing is the industry where it is most prevalent, but it is not a new phenomenon.
Over the last 50 years employment in manufacturing has declined from about 28% to roughly 8% of total employment in the U.S., while the amount of goods produced has significantly increased. That increased productivity growth in manufacturing is a success story since producing more products per hour worked increases our standard of living.
But those who lose their jobs due to automation are hurt in the same way as those who lose their jobs from import competition. And manufacturing is not the only industry where technological change seems to be accelerating. Stories about increased use of robots and self-driving cars and trucks are common place and no doubt raise concerns about whether there will be “enough work to go around”.
Looking at economy wide data, many more jobs are lost due to technological change than due to trade but trade is blamed much more than technological change. Trade is a convenient whipping boy as evidenced by the recent Presidential election. Both Donald Trump and Hillary Clinton ran anti-trade campaigns. Both opposed the Trans Pacific Partnership, an important trade and geopolitical agreement negotiated by the Obama Administration.
The anti-trade rhetoric during the campaign was overwhelming. It was much easier to attack imports than technological change. The TPP fell victim to this. My own opinion is that technological change is causing disruptions in a variety of jobs but the jury is still out on whether it is significantly different from past periods of change. Back in 1900, 38% of our work force was employed in farming. Today it is less than 2%.
I am old enough to remember when I had to call an operator to make a long-distance call. What happened to all of those telephone operators? They didn’t just disappear; they found jobs in other occupations or industries. And people moved from working on farms to other industries. Different skills and more education are required in some cases, but this is not an insurmountable problem.
There is also a growing awareness of the mismatch between the skill level of people unemployed and the qualifications required for available jobs. Employers increasingly say that they are looking for workers but cannot find qualified applicants. And the problem is not only the specific job related skills.
For example, in terms of overall readiness for the workplace, it is shocking to me that 70% of our 17-24 year old’s would not qualify for military service because of obesity, drug use, criminal records, or inability to pass the military’s exam for math, literacy, and problem solving.
The problem is much deeper than recruiting for the military. The percentage of prime age males 25-54 years old who are working or looking for work in our country has declined steadily for over 60 years. Back in 1953, 3% of prime age males did not participate in the labor force; today it is almost 12%. This has been offset to some extent by the growing participation rate of females but that trend has now leveled off.
A growing portion of prime age males are now on disability, and we have a widely-publicized increase in drug use, particularly opioid use, and an increase in alcoholism. And the mortality rate for this age group has been increasing as well, in part due to an increase in the suicide rate. So those hurt by trade gets the headlines but the cause of many people not working goes way beyond trade.
We have made some attempts to address dislocations caused by trade and other reasons, but not enough. We have a broad range of government funded programs that provide career counseling, skills upgrading, job training, and income support.
In general, our programs have had mixed results and pale by comparison to assistance programs in other countries such as Germany, France, and Denmark.
If we were really serious about helping those hurt by trade – or the challenges of technological change –
- We would conduct a serious review of the current programs,
- Provide funds for experimental programs in different labor markets,
- Draw on experience in the private sector, conduct objective evaluations, share best practices,
- And show the American people that we are making a serious effort to address the problem.
Don’t get me wrong. These programs are not a panacea. Training people to work in a new industry after extensive experience in their current job is no small task. It also requires significant hard work and discipline by the individuals. But I believe that we have to do better.
We must start looking at how to prepare our young people for the changing workplace of the 21st century and find ways for them to learn new skills over the course of their working lives. Whether we address these problems is up to all of us. The cost of not doing so is very high. The damaging turn against trade is just one example of this cost. I hope that we will rise to the occasion. Thank you again for this honor.