Ooops! Foreign Trade Has Immiserated U.S. Workers After All

Moneybox
A blog about business and economics.
Sept. 20 2013 10:16 AM

Ooops! Foreign Trade Has Immiserated U.S. Workers After All

89515648
Container ships. Imports and global trade have hurt the labor share of national income.

Photo by Jeff J. Mitchell/Getty Images

I'm at the Brookings Papers on Economic Activity conference and listening to a presentation from Michael Elsby, Bart Hobijn, and Aysegul Sahin that in my opinion is a bit of a blockbuster. They are looking at the reduction in the "labor share" of national income over the past 20-30 years and boring down into detail.

One thing that they find is that the headline decline in this indicator is actually a bit overstated due to technical issues with the treatment of self-employment income. About a third of the total decline, they think, can be attributed to miscalculation. The blockbuster finding, however, is that the remainder is very heavily concentrated in industries that are newly composed to import competition. In other words, the labor share of national income has fallen because many more industries are exposed to foreign competition in a way that's systematically advantaged the owners of capital.

Now go to a rust belt town with this finding, and people are going to say: "That's news?! What the heck is wrong with you economists?!?!"

Advertisement

But the fact is that it is news. Over time, the labor share of national income tended to be constant. And most economists took that stylized fact and put it into their models. That led them to assure people that whatever happened when the country became more open to foreign trade, a fall in the labor share of income couldn't possibly be the result. Yes, some specific workers would lose out but workers on the whole wouldn't. You would see concentrated losses and diffuse benefits. Elsby, Hobijn, and Sahin are saying that's not what happened. The constant labor share was an empirical regularity, but not a law of nature. Joint policy changes in the United States and Asia were enough to substantially shift it and to meaningfully tilt the balance of power inside the American economy to owners of capital.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.

TODAY IN SLATE

Culturebox

The Ebola Story

How our minds build narratives out of disaster.

The Budget Disaster That Completely Sabotaged the WHO’s Response to Ebola

PowerPoint Is the Worst, and Now It’s the Latest Way to Hack Into Your Computer

The Shooting Tragedies That Forged Canada’s Gun Politics

A Highly Unscientific Ranking of Crazy-Old German Beers

Education

Welcome to 13th Grade!

Some high schools are offering a fifth year. That’s a great idea.

Culturebox

The Actual World

“Mount Thoreau” and the naming of things in the wilderness.

Want Kids to Delay Sex? Let Planned Parenthood Teach Them Sex Ed.

Would You Trust Walmart to Provide Your Health Care? (You Should.)

  News & Politics
The World
Oct. 22 2014 2:05 PM Paul Farmer Says Up to Ninety Percent of Those Infected Should Survive Ebola. Is He Right?
  Business
Business Insider
Oct. 22 2014 2:27 PM Facebook Made $595 Million in the U.K. Last Year. It Paid $0 in Taxes
  Life
The Eye
Oct. 22 2014 1:01 PM The Surprisingly Xenophobic Origins of Wonder Bread
  Double X
The XX Factor
Oct. 22 2014 10:00 AM On the Internet, Men Are Called Names. Women Are Stalked and Sexually Harassed.
  Slate Plus
Tv Club
Oct. 22 2014 5:27 PM The Slate Walking Dead Podcast A spoiler-filled discussion of Episodes 1 and 2.
  Arts
Brow Beat
Oct. 22 2014 10:39 PM Avengers: Age of Ultron Looks Like a Fun, Sprawling, and Extremely Satisfying Sequel
  Technology
Future Tense
Oct. 22 2014 2:59 PM Netizen Report: Twitter Users Under Fire in Mexico, Venezuela, Turkey
  Health & Science
Wild Things
Oct. 22 2014 2:42 PM Orcas, Via Drone, for the First Time Ever
  Sports
Sports Nut
Oct. 20 2014 5:09 PM Keepaway, on Three. Ready—Break! On his record-breaking touchdown pass, Peyton Manning couldn’t even leave the celebration to chance.