There is a very good new paper by Lawrence Edwards and Robert Z. Lawrence. In this case the conclusion is clearer than the abstract:
…the fear of rising US wage inequality from developing-country imports in recent years are unwarranted. While conventional trade theory makes such expectations plausible our investigation reveals they are far off the mark. At the most disaggregated level for which comprehensive skills are available we have found that the US industries competing with developing country imports are not particularly intensive in unskilled labor. Moreover, the relative effective prices of the US industries that are unskilled labor-intensive have actually increased rather than decreased since the early 1990s. Changes in effective US prices form whatever cause have not mandated changes in relative ages. Neither have changes that can be ascribed to import prices mandated increases in wage inequality.
The most likely explanation for the data is:
The goods exported by developing countries are highly imperfect substitutes for those produced by developed countries. This means that for the most part, unskilled US workers are not competing head to head with their counterparts in developing countries.
You can find ungated copies here, though in some browsers they seem to create problems.
Would have been better if the coauthors were named Lawrence Edward and Edward Lawrence, but still pretty good.
So what else is the source of growing income inequality if not that? Do we have a good idea?
Same dilemma as Steve…what is to be done about that?
Same dilemma as Steve…what is to be done about that?
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Actually Steve’s claim is simply not true. I recommend you scroll through the first several posts at Ambrosini’s.
The money quotation: In the last few years, researchers have shown that when all of these factors are taken into account, the surprising result is that immigrants don’t seem to have a negative effect on native wages or employment levels. In fact, its likely that immigrants have even been a net positive for natives. .
Yes this result seems to hold even in recessions. These people are unemployed not do to competition within an industry but because of the recession’s impact on the industry as a whole.
as a teenager, i mowed lawns and washed dishes.
those jobs are not as available anymore.
“In the last few years, researchers have shown that when all of these factors are taken into account, the surprising result is that immigrants don’t seem to have a negative effect on native wages or employment levels. ”
Apparently they are being very selective where they are looking. The raid on Agriprocessors in Postville, Iowa revealed starting wages for killing floor jobs of $6.25/hr. No one can claim with a straight face that this is anything close to the prevailing wage scale, or at least those that prevailed before large scale hiring of people so Indio they couldn’t even speak Spanish (25% of the surnames of apprehended aliens were clearly Mayan.) Personal records with applications from local workers show that they left after 6-10 months because of wage scales.
Subsequent to a similar raid in Amarillo, Texas local workers filed suit against the company – I think it was Armour, or maybe it was Swift – for using illegal labor to depress the wage scale, using company personnel records seized in the raid. The plaintiffs claimed they had been paid previously in the range of $20/hr – easy enough to document – and that Armour was now paying the illegal workers on the order of $10/hr – again, easy enough if you have the company’s internal documents.
There is no institutional connection between Armour and Agriprocessors, so it is likely that instead of this being a case of one set of bad actors, this kind of thing is happening widely across the industry, at least as wide from eastern Iowa to western Texas.
> The goods exported by developing countries are highly imperfect substitutes for those produced by developed countries.
But didn’t those same goods used to be produced by developed countries? It’s not like we didn’t have all of the stuff that’s made in China before they started making it – it just cost more.
Well… the full paper & authors’ hypothesis isn’t that wages would never be effected, but that the HOSS framework is an appropriate method because it relies on the idea that trade & factor supplies – specifically in this paper the factor supplies we are discussing is unskilled labor.
The authors go further to state their reasoning for believing this isn’t applicable to the US and the developing countries from which she imports; which is the US’s highly specialized economy.
I’m wondering however if they might be looking at this backwards…. their comparison is if a product is made primarily through unskilled labor, trade with countries awash in unskilled labor would decrease the price of unskilled labor. Product differentiation and specialization certainly can account for a portion of the lack of wage depression, but I think downward pressures exist elsewhere.
Let’s start by asking – what is trade? Theoretically, we trade something of lessor value for something of more value – there isn’t a loser in the transaction of course as both people get something of greater value than they had.
Given that – if you look at the factors which make up any product, I think you’re bypassing the big picture. That is, if my product takes 2 factors (say labor & widgets) which cost 2 dollars, but people will only spend 1 dollar on the end product, I can’t make the product. Or, if it cost me three weeks hunting or farming or whatever to get less food than I need in three weeks – I can’t do that either.
So the question is – should be looking for return on the product itself along with the factors.
The point being – if labor makes up 80% of a product, two countries could make the exact same product, have vastly different wage scenarios, but the return on investment be similar for all kinds of reasons – including differences in…. government regulations, barriers to entry, government corruption, taxes, etc, etc, etc.
QUOTE: “The goods exported by developing countries are highly imperfect substitutes for those produced by developed countries. This means that for the most part, unskilled US workers are not competing head to head with their counterparts in developing countries.”
So because Nike wants to pays low low wages offshore instead of in the US our low wage workers here aren’t effected because we don’t manufacture any shoes in the US anyway? Not too reassuring.
It might be more interesting to study industries the US is in the process of losing. You know, before we only have ‘highly imperfect substitues.’
To someone earlier; if we’re concerned about US unskilled labor it’s not too helpful to bring out a study which claims US citizens as a whole enjoy higher wages and more jobs because of illegal immigrants. Screwing unskilled labor and benefitting the population as a whole go hand in hand…
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The Dan in Euroland link also goes on to say that the data is murky because the studies that show ‘zero’ effect (on average) don’t consider indirect affects (e.g. native workers in Miami move to Texas and possibly reduce wages there) so a ‘zero’ effect becomes negative rather quickly if anything negative is added to it.
However, if on-net it allows the rich to be taxed more so the poor can be paid, maybe it’s a wash.
Mr Moore:
Nice process going there. 1) Addition of labor to a pool reduces demand (wages). 2) Reduced wages trigger fleeing from the field by those who can. 3) Number of original members of the pool is small. 4) No real effect.
Bull.
Illegals directly compete with highschool kids in lawn care. They directly compete in meat processing with uneducated adults. They directly compete in daycare. They directly compete in construction. They directly compete in hospitality. They directly compete in farm labor. The bold directly compete in taxicabs. This is not the end of the list.
BTW, I am NOT anti-immigrant. I AM anti-BS. I want to see the law enforced for a couple of decades (roughly half the time it has been ignored), and then see what sorts of changes might be appropriate. I would love to assimilate (key word: assimilate) millions of people a year. My immediate concerns are that assimilation is often not occurring, that this failure is being driving by certain elements of the political class, and that in particular someone entering illegally is going to assimilate far less than a legal entrant.
Very interesting read.Really the effect of trade flows on American jobs is actually pretty complicated and so I feel it requires a bit of untangling.
Agreed. Just because people are in a developing country, that doesn’t mean the jobs are unskilled.
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