This is the second of the three courses part of the Globalization, Economic Growth and Stability Specialization. This course will focus on facets of globalization that affect a country´s economic perspectives and decisions. Globalization has recently been the predominant subject in many political debates, and this course will go into the determinants of globalization. It will be separated into four modules; the first module will explain exchange rates. It will cover what determines exchange rate and how different exchange rates affect the economy and the reality of currencies. The second module will explore trade, the reality of free trade, and what occurs to a country´s economy with protectionism. The third module will go into the balance of payments, it will help you understand how economic transactions between a country and the rest of the world work. The fourth module will focus on Immigration, which is probably one of the most controversial subjects today. It will explain how migration affects host countries and it will cover current migration trends.
Conclusions: Is globalization to blame for stagnant lower- and middle-class incomes?
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Do curso por IE Business School
Trade, Immigration and Exchange Rates in a Globalized World
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(Im)migration
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Gayle AllardProfessor
Economics
As we conclude this course,
another big question that I think that we should tackle and it's a question
that may be marginal to the basic material addressed in the course,
but it's very important to the conclusions.
We've established that trade may hurt
the incomes of the unskilled workers in developed countries.
So I'd like to just spend a couple of minutes thinking about,
is trade really the key reason why incomes
have stagnated or declined in many developed countries in recent years?
Now here, I've got a graph here that I'd like you to have a look at.
This comes from McKinsey Global Institute.
And a recent report by this Institute found that,
the real incomes of two thirds of households in 25 advanced economies,
were either flat or declined between 2005 and 2014.
Now this compares with the previous decade where they rose by two percent.
So here we have a reality,
which is in fact the incomes of the middle
and lower class are declining in developed countries,
whereas before they were rising.
Some incomes have gone up.
Those are the high incomes.
Almost all of the gains in income have gone to the rich in those developed economies.
Now this is a problem and it is a reality.
So what we want to think about is,
is trade responsible for that?
Let's hang on to that thought for just a moment and look at another fact.
The United States lost six million manufacturing jobs, net,
the ones created minus the ones destroyed,
between 1999 and 2011.
This is just the United States.
We've seen it in other developed countries as well.
But I'm just going to focus on the United States.
Now why is it important to have a manufacturing job?
Well, the manufacturing sector,
the industrial sector has been the road to the middle class for
many low skilled or unskilled workers throughout the 20th century.
In other words, a worker could come,
say, to an automotive plant,
with a low level of skills,
get a solid job that was well-paid,
that was secure, that was protected by unions.
And so salaries continue to rise and that had health and pension benefits.
And you can think whatever you think about the industrial working class,
but this was the reality.
What happened then, was that these people were propelled into the middle class
and a growing middle class causes economic growth to perpetuate itself.
So it becomes sustained, because it's inclusive.
Right. The middle class tends to spend most of its money,
the upper class does not.
So, some of these people who lost their jobs found other jobs.
In fact, most of them found other jobs because U.S. unemployment has remained low.
Some of them dropped out of the labor force.
Others found work, but usually what we're finding is that the work that they found that
was outside of now this manufacturing sector was in general more precarious,
worse paid, maybe you earned 50,000 as
an automotive worker and now you earn 25,000 as a janitor.
And therefore, this has been a real crisis for these people,
for the people who got knocked out of
the manufacturing sector and had to find their place elsewhere,
and maybe couldn't afford their homes anymore,
or couldn't afford college for their children.
So there's been a widespread sense that there's this dissatisfaction,
that this economy is not working.
That it's working for an elite and it is working for them,
but for the broad mass of people,
they're losing out and this kind of fuels populism.
So again, we want to ask ourselves,
why is this happening?
Why have these jobs been destroyed,
even though other worse jobs have been created?
Why have these incomes been stagnant or declining?
Is it because of trade.?
Well, a lot of work has been done on this question by economists in
recent years because there is so much debate and so much concern.
And we know that when China joined the WTO which was in 2001 this was a tremendous blow,
not a blow, a shock to the world trading system,
because it's so big,
it expanded very rapidly as a trading power.
And you can see that
the China's percent of world manufacturing was only 2 percent in 1991,
but by 2013 it had risen to 20 percent.
So maybe China and trade did have something to do with
the plight of the working class in
manufacturing jobs in a country like the United States.
In fact, one study showed that about 2.4 million of
those six million jobs that were lost in manufacturing
may have been due to China directly and indirectly.
So, directly in the sector and then in jobs that depended on the sector.
But there are still a lot of jobs to account for.
They're still the majority of jobs to account for,
and many economists agree that technology is
responsible for more of the job and income loss than trade.
And I would encourage you to follow this debate,
because it's very much in the good papers and in the good economic magazines.
Technology as a job destroyer,
technology taking jobs out of manufacturing
in developed countries because workers are expensive and robots are cheaper.
And technology being responsible for more of these job and income losses than trade.
If you look at this picture you can see that
factory jobs in the United States peaked in the 1970s,
but manufacturing output has continued to rise.
Therefore what we're seeing is that we're using fewer workers to produce more and more.
Also there's rising concentration in industry.
This is happening around the world but it's particularly important in the United States.
This has led us to a situation where profits are
at a historical high for historically long period.
So again, the winners are not compensating the losers.
The inequality is growing but it's not because of trade.
Some of it is because of trade.
Most of it is because industry is doing very well.
It is cutting jobs,
worst jobs are being created.
The winners need to compensate the losers.
So if we look at workers and we say,
is trade to blame for their situation?
There is some effect from trade.
There's a huge effect,
much bigger than trade from technology.
There is an effect from concentration and rising incomes at the top.
There was a recession,
there was a financial crisis.
All of these things have played a role
in the plight of workers in the United States and in
all developed countries and trade is not
the main determinant of their difficult situation.
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