Courtesy Reuters

Manufacturing Globalization

The Real Sources of U.S. Inequality and Unemployment

Richard Katz

A decade ago, the great American jobs train fell off its tracks. Traditionally, boosts in private-sector employment have accompanied recoveries from economic downturns. In the first seven years after the beginning of the 1980 and 1990 recessions, for example, the number of private-sector jobs increased by 14 percent. Yet in January 2008, seven years after the previous pre-recession peak and before the most recent recession began, private-sector jobs were up only four percent. Today, for the first time in the postwar era, there are fewer of these jobs than there were ten years before.

Ignoring the overall dearth of jobs, Michael Spence (“The Impact of Globalization on Income and Unemployment,” July/August 2011) singles out the fraction of employment in sectors related to trade. He claims that China and other developing countries have taken U.S. jobs and blames globalization for the substantial increase in income inequality across the country. It is misleading, he says, to argue that “the most important forces operating on the structure of the U.S. economy are internal, not external.” He is wrong: the fault lies not in China or South Korea but at home.

It is true, as Spence claims, that the tradable sector of the economy has lost many jobs in the past several decades. (According to Spence, the tradable sector produces goods and services that can be consumed anywhere, such as manufacturing, whereas the nontradable sector produces goods and services that must be consumed domestically, such as health care). But that is like saying that children with big feet are better readers than children with small feet. It would help to know that the kids with big feet are fifth graders and that those with smaller feet are second graders. The lion’s share of tradable products consists of manufactured goods, leading Spence to conflate the fate of manufacturing jobs with that of jobs in the tradable sector. The United States lost 4.4 million manufacturing jobs between 1990 and 2008. Since Spence says that

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