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Monday, February 27, 2012

Globalization, Worker Insecurity, and Policy Approaches

Raymond J. Ahearn
Specialist in International Trade and Finance

Today’s global economy, or what many call globalization, has a growing impact on the economic futures of American companies, workers, and families. Increasing integration with the world economy makes the U.S. and other economies more productive. For most Americans, this has translated into absolute increases in living standards and real disposable incomes. However, while the U.S. economy as a whole benefits from globalization, it is not always a win-win situation for all Americans. Rising trade with low-wage developing countries not only increases concerns of job loss, but it also leads U.S. workers to fear that employers will lower their wages and benefits in order to compete. Globalization facilitated by the information technology revolution expands international trade in a wider range of services, but also subjects an increasing number of U.S. white collar jobs to outsourcing and international competition. Also, globalization may benefit some groups more than others, leading some to wonder whether the global economy is structured to help the few or the many.

The current wave of globalization is supported by three broad trends. The first is technology, which has sharply reduced the cost of communication and transportation that previously divided markets. The second is a dramatic increase in the world supply of labor engaged in international trade. The third is government policies that have reduced barriers to trade and investment. Whether these trends are creating new vulnerabilities for workers is the subject of increasing research and debate.

Some of the vulnerabilities for workers are underlined by changing employment patterns caused by increased foreign competition, weak wage growth, and rising income inequality. These trends, in turn, have become a source of economic insecurity for many Americans and may be weakening public support for U.S. engagement with the world economy.

To bolster public support for an open world economy, the conventional wisdom is that the legitimate concerns of those who are losing in the contemporary economic environment need to be addressed. To what extent the losers should be compensated and how is a matter of considerable congressional and public debate. Because the relationship between globalization and worker insecurity is complicated and uncertain, a number of different approaches may be considered if the goal is to bolster public support for U.S. trade policies, globalization, and an open world economy. Policies involving adjustment assistance, education, tax, and trade are most commonly proposed.

There appears to be a range of views on the merits of each of these policy approaches and the extent to which they can be designed and implemented in a way that would reduce worker insecurity without undermining the benefits of globalization. In the view of many economists, policies that inhibit the dynamism of labor and capital markets or erect barriers to international trade and investment would not be helpful because technology and trade are critical sources of overall economic growth and increase U.S. living standards. At the same time, identifying the most effective policy approach is made difficult by the variety of factors – trade with developing countries, increases in foreign investment flows, trade and financial liberalization, immigration, and skill-based technological change – that may be generating job and income trends that are increasing worker insecurity.

Date of Report: February 1
7, 2012
Number of Pages:
Order Number: RL3
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