Globalization, Worker Insecurity, and Policy
Approaches
Raymond J. Ahearn
Specialist in International Trade and Finance
December 22, 2011
Congressional Research Service
7-5700
www.crs.gov
RL34091
CRS Report for Congress
Pr
epared for Members and Committees of Congress
Globalization, Worker Insecurity, and Policy Approaches
Summary
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. Some
recent research examines whether these trends are creating new vulnerabilities for workers.
Some of the vulnerabilities for workers are underlined by changing employment patterns caused
by increased foreign competition, a declining wage share of national income, 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 increases in the U.S. living standard.
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Contents
Introduction...................................................................................................................................... 1
Trends Driving Global Economic Integration ................................................................................. 3
Technology ................................................................................................................................ 3
Global Labor Supply ................................................................................................................. 3
Government Policy.................................................................................................................... 4
Sources of Worker Insecurity........................................................................................................... 4
Job Losses and Fears ................................................................................................................. 4
Rising Income Inequality .......................................................................................................... 6
Policy Approaches ........................................................................................................................... 7
Adjustment Assistance............................................................................................................... 8
Education................................................................................................................................... 8
Tax Policy.................................................................................................................................. 9
Trade Policy............................................................................................................................. 10
Domestic Standards ................................................................................................................. 11
Free Markets and Limited Government................................................................................... 12
Contacts
Author Contact Information........................................................................................................... 12
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Introduction
The U.S. economy is becoming increasingly open to the world economy. Much of what
Americans consume or buy is produced in other countries. Similarly, much of what Americans
produce is exported abroad.1 Huge quantities of capital or money flow into and out of the United
States every day, swamping the value of goods and services that are exchanged.2 New
technologies and business practices accompany the flows of investment capital. A growing
number of the largest U.S. companies rely on international markets for over 50% of their sales
and employ more foreign workers than domestic. In the process, today’s global economy, or what
many call globalization, is having a growing impact on the economic futures of American
companies, workers, and families.3
Economic theory holds that a more open and integrated world economy provides large scale
economic benefits. By providing for specialization in production across countries, trade enhances
the economic output here and abroad, and in so doing, boost living standards. Competition from
economic integration is seen as making the U.S. economy more efficient and more productive.
Global markets give consumers more choices and help reduce the costs of goods and services,
thereby keeping inflation in check. The Peterson Institute for International Economics has
estimated that the integration of the global economy generates an economic gain of between $500
billion and $1 trillion dollars to the U.S. economy each year.4 Similarly, gains from globalization
have been large for many developing countries, lifting hundreds of millions of people out of
poverty in countries such as China and India.5
At the same time, greater global economic integration accompanied by rapid technological
change does not always benefit everyone within a country. It can be accompanied by stress and
anxiety, as new competitors arise and compete for market share. Shifts in the structure of
production impose costs on workers and business owners in declining sectors, and thus, create a
constituency that opposes the process of economic integration. Opposition may be intensified by
perceptions that foreign competitors benefit from unfair trade practices. Furthermore, rising trade
with low-wage developing countries may drive down the wages of domestic low-skilled
workers—even as they benefit from cheap imports—and prompt them to wonder whether the
United States can continue to compete in a vastly changed world economy.6 Increased economic
1 Exports and imports of goods and services accounted for 29% of U.S. GDP in 2010, up from 9% in 1960. CRS
calculations based on U.S. Department of Commerce, Bureau of Economic Analysis data.
2 By some estimates (a 2010 survey by central banks) daily trading of foreign currencies totals more than $4.1 trillion.
This compares to global trade in goods and services of about $20 trillion per year (2010 World Trade Organization
data).
3 Globalization can be defined in various ways, but economic globalization refers to the increasing integration of
national economies into a world trading system. Globalization involves trade in goods and services, sales of assets (i.e.
currency, stocks, bonds, and real property), as well as the transfer of technology, and the international flows (migration)
of labor. See CRS Report RL33944, Trade Primer: Qs and As on Trade Concepts, Performance, and Policy,
coordinated by Raymond J. Ahearn, and Freiden, Jeffrey, A., Global Capitalism: Its Rise and Fall In the Twentieth
Century, WW Norton &Co., 2006.
4 Bradford, Scott C., Paul L. E. Grieco, and Gary Clyde Hufbauer, “The Payoff to America from Global Integration,” In
The United States and the World Economy: Foreign Economic Policy for the Next Decade, C. Fred Bergsten, ed.,
Institute for International Economics, Washington, D.C. 2005.
5 See Remarks by Treasury Secretary Henry M. Paulson on the International Economy, September 13, 2006.
http://www.ustreas.gov/press/releases/hp95.htm
6 Since the United States tends to export goods that use skilled labor intensively and to import goods that use less-
(continued...)
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openness and interdependence may also engender opposition as some groups benefit more than
others from globalization, leading some to question whether the global economy is structured to
help the few or the many. In addition, these changes often bring high-skilled workers greater
wage and income rewards than low-skilled ones. 7
On balance, today’s integrated global economy provides substantial net benefits, but it also
creates substantial economic losses that are borne by specific groups. While the U.S. economy as
a whole benefits, some workers, firms, and communities are made worse off. Even as new
technologies create new jobs and lead to greater productivity and output overall, many Americans
worry that their losses will outweigh their gains, and, as a consequence, they and their children
will face a stagnant or declining standard of living. Widespread insecurity, in turn, may affect
how Members of Congress view globalization generally and specifically, its most visible
manifestation—new trade agreements.8 Moreover, popular insecurity may be raising concerns
that the process of economic integration will be interrupted or reversed.9
Some congressional opposition to selective efforts to expand world commerce has been linked, in
part, to public unease over globalization’s impact on U.S. economic security and prosperity. For
example, in 2007 the House Democratic leadership stated that the benefits of globalization must
be expanded to all Americans first before Congress would consider President Bush’s request to
extend his authority to negotiate new trade agreements that would receive expedited
consideration, that is trade promotion or fast-track authority.10 Similar concerns may explain, in
part, why it took four years before Congress took up consideration of free trade agreements with
Panama, Colombia, and South Korea that had been negotiated by the Bush Administration.11
To bolster public support for an open world economy, conventional wisdom suggests that the
legitimate concerns of those who are losing in the contemporary economic environment need to
be addressed. Yet, compared to the benefits of globalization, U.S. programs geared towards
compensating the losers have been quite modest.12 To what extent the losers should be
(...continued)
skilled labor intensively, increased trade, on balance, raises the demand for skilled labor and reduces the demand for
less-skilled labor. Thus, it is reasonable to expect that as the United States increases its trade with low-wage and low-
skilled developing countries, wages of low-skilled U.S. workers will face downward pressure. An influx of immigrants
with less than a high-school education, by increasing the relative supply of low-skilled labor, may further intensify
pressures on wages at the bottom end, as does technological change.
7 Bernanke, Ben S. Remarks at the Federal Reserve Bank of Kansas City’s Thirtieth Annual Economic Symposium,
Jackson Hole Wyoming, “Global Integration: What’s New and What’s Not? At http://www.federalreserve.gov/
boarddocs/speeches/2006/20060825/default.htm.
8 For discussion of trade agreements and legislation in the 112th Congress, see CRS Report R41533, Accountability
Issues and Reauthorization of the Elementary and Secondary Education Act, by Rebecca R. Skinner and Erin D.
Lomax.
9 See remarks of Timothy F. Geithner, President and Chief Executive Officer, New York Fed, “Developments in the
Global Economy and Implications for the United States, January 11, 2007. Found at http://www.newyorkfed.org/
newsevents/speeches/2007/gei070111.htm
10 See CRS Report RL33743, Trade Promotion Authority (TPA) and the Role of Congress in Trade Policy, by J. F.
Hornbeck and William H. Cooper, and CRS Report R41145, The Future of U.S. Trade Policy: An Analysis of Issues
and Options for the 112th Congress , by William H. Cooper.
11 See CRS Report R41145, The Future of U.S. Trade Policy: An Analysis of Issues and Options for the 112th Congress
, by William H. Cooper.
12 The Peterson Institute for International Economics, for example, estimates that the lifetime costs of worker
displacement to be roughly $50 billion per year, but calculates that the United States spends about $2 billion per year to
address the costs connected to displacement.
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compensated and how, however, is a matter of considerable congressional and public debate.
Currently, approaches affecting adjustment assistance, education, tax, and trade policies are most
commonly being put forth to address these concerns. The costs and whether the programs will
directly address economic insecurities are some of the questions being raised.
Trends Driving Global Economic Integration
Economic integration of widely separated regions is hardly a new phenomenon. It has been going
on for hundreds of years. The current wave of globalization, which may be unprecedented in
terms of its scale and pace, 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 which have reduced barriers to trade and investment. A growing
body of research examines whether these trends are combining to create new vulnerabilities for
workers.13
Technology
In the current phase of globalization, economic distances have shrunk because of the increasing
ability to communicate nearly instantaneously at costs that continue to decline. These advances in
communication have allowed firms to break up the production process into discrete steps and to
produce goods in whatever location allows them to minimize costs. As a result, modern products
ranging from cell phones to chain saws are assembled from hundreds of components that are
procured from many different countries around the world.14
The information technology revolution also facilitates international trade in a wider range of
services, from call center operations to sophisticated financial, legal, medical, and engineering
services. In the process, more jobs in the U.S. labor force become increasingly vulnerable to
international competition.15
Global Labor Supply
The integration of Brazil, Russia, India, and China into the world economy over the past two
decades means that the greater part of the earth’s population is now engaged in the global
economy. The addition of several billion new workers to the global supply of labor (an estimated
50% increase), combined with the lessening of time and distance by the information technology
revolution, creates a more competitive environment for workers in the United States and other
developed countries. Integrating the economies of poor and rich countries means that workers in
rich countries are often now in direct competition with workers in emerging market economies
13See Divided We Stand: Why Inequality Keeps Rising, Organisation for Economic Cooperation and Development
(OECD), 2011; and chapter 3 of OECD Employment Outlook, 2007, “OECD Workers in the Global Economy:
Increasingly Vulnerable? ISBN 978-92-64-033303-0, pp. 105-154.
14 As late as the 1980s, a telephone in Europe was constructed from components all built in one factory. Today a
modern mobile phone is constructed from thousands of components, half of which have crossed international borders.
15 Bernanke, Ben S. op. cit. (2006 Jackson Hole Speech) p. 5.
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who may on average be paid 90% less, yet are still highly educated.16 Not only does this
integration increase fears of job loss among workers in rich countries, but it leads to concerns that
employers will have to lower their wages and benefits in order to compete.
Government Policy
Government policy has played a critical role in supporting or at least permitting global economic
integration to proceed. Over the past 60 years, government restrictions on trade and capital flows
have gradually declined, making it easier for companies to act as global players. By providing an
institution in which all members are on a roughly equal footing, the World Trade Organization
(WTO) greatly facilitated the inclusion of several billion new workers in the global system. The
WTO also has developed rules and disciplines that make it easier for companies to move
production to low-wage countries with more business-friendly regulations. In addition,
agreements such as NAFTA have provided an additional spur to economic integration between a
low-wage (e.g. Mexican) economy and the high-wage U.S. economy.17
Sources of Worker Insecurity
In the decade prior to the 2008-2009 recession and global financial crisis, there was little question
that by some measures—economic growth, productivity growth, and low inflation - the U.S.
economy had performed well. For most Americans, this translated into absolute increases in
living standards as measured by gains in real consumption and real disposable incomes.18 A
growing engagement with the world economy was an important factor facilitating a robust overall
economic performance. However, these positive developments coincided with changing
employment patterns caused by increased foreign competition, a declining wage share of national
income, and rising earnings inequality. These trends, in turn, have been exacerbated by the 2009-
2009 recession and have become a source of economic insecurity for many Americans. Whether
these trends may be contributing to declining public support for U.S. engagement with the world
economy and for additional trade agreements remains to be seen.19
Job Losses and Fears
Much of the public anxiety about the economy and globalization may be related to job losses in
the manufacturing sector and fears that many service sector jobs, previously thought immune to
16 If unit labor costs or productivity are also 90% lower in low-wage countries, then U.S. workers are not at a
disadvantage.
17 Prestowitz, Clyde, Three Billion New Capitalists: The Great Shift of Wealth and Power to the East, Basic Books,
2005.
18 Bernanke, Ben S. “The Level and Distribution of Economic Well-Being,” Remarks before the Greater Omaha
Chamber of Commerce, February 6, 2007.
19 Polling of public attitudes towards trade and trade agreements often yields mixed results. Some polls find that the
American public are quite negative towards trade and free trade agreements (e.g. an NBC/Wall Street Journal poll
found at http://online.wsj.com/public/resources/documents/WSJNBCPoll09282010.pdf) while other polls (e.g. Chicago
Foreign Relations Council poll found at http://www.thechicagocouncil.org/curr_pos.php) find a majority of the public
favoring agreements to lower trade barriers. While the differences could be due to how the questions are worded, most
polls do show that the American public is worried about the ability of the United States to compete in the global
economy, particularly with large, lower-wage developing countries.
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the pressures of the global economy, are being outsourced to other countries.20 Some critics of
globalization maintain that America’s manufacturing base is being eroded and the longstanding
belief that America’s economic future rests increasingly in the creation of high-paid service sector
jobs is being jeopardized.21 While some of these job fears rest on misconceptions, others reflect
problems that may require new or different policy responses.
A main anxiety about the U.S. manufacturing base stems from a sharp drop in U.S. manufacturing
employment. The total number of manufacturing jobs fell by 2.1 million, from 15.8 million in
November 2001 (the trough of the latest recession) to 13.7 million in December 2007, just prior
the onset of the 2008-2009 recession. As of mid-2011, another 1.9 million jobs had been lost,
with total manufacturing employment standing at 11.7 million.22 Despite a growing economy and
near full-employment prior to the 2008 recession, many of those who lost jobs found it more
difficult to secure new employment or had to accept lower paying jobs in order to become
reemployed. And, most workers who permanently lost jobs in mass layoffs that involve
outsourcing (offshore or domestic) had been employed by manufacturers.23
This has been combined with Internet-facilitated outsourcing of service jobs that were previously
only tangentially involved in the global economy. The fact that the work of a wide range of U.S.
knowledge workers in business services, medicine, accounting and computer programming can
now be done much more cheaply by workers residing in lower-wage countries has led to rising
anxiety among white-collar workers about international competition. At the same time, many
businesses that are not shedding workers are pulling back or reneging on decades-old
commitments to provide health insurance and traditional pensions as they search for ways to stay
competitive in today’s global economy. All of this may be a factor in the erosion of traditional
sources of security for workers—not only job security, but the confidence of families in their own
health and pension benefits and their children’s college prospects.24
Other economists maintain that worker fears of de-industrialization and massive offshoring of
high-paid jobs are vastly overblown. While rising foreign competition, together with technical
change, will reduce employment in sectors of the economy most sensitive to foreign competition,
they point out that U.S. manufacturing output has increased over the past two years and that the
U.S. share of world manufacturing output has been stable over the past two decades, averaging
around 21%. They also emphasize that much of this is being accomplished by heavy investment
in robots and computers, which allow companies to produce more goods with fewer workers.
Domestic factors such as technological innovation, not trade, they argue have been the dominant
factors in the loss of manufacturing jobs. 25
20 Outsourcing, also known as offshore outsourcing, involves the contracting out of service sector activities (e.g., call
center operations) to businesses outside the United States. For background and analysis, see CRS Report RL32292,
Offshoring (or Offshore Outsourcing) and Job Loss Among U.S. Workers, by Linda Levine.
21 Ibid. p. 6. For example, while U.S. workers have been encouraged to focus on obtaining information technology or
IT skills to position themselves for high-paying jobs, some of these jobs now appear at risk of being exported.
22 Bureau of Labor Statistics data.
23 CRS Report RL32292, Offshoring (or Offshore Outsourcing) and Job Loss Among U.S. Workers, by Linda Levine;
and CRS Report RL30799, Unemployment Through Layoffs and Offshore Outsourcing, by Linda Levine.
24 See Edward Gresser, “Healthy Factories, Anxious Workers,” Progressive Policy Institute Policy Report, February
2007. Found at http://www.frbsf.org/news/speeches/2006/1106.html
25 National Association of Manufacturers, “Facts About Modern Manufacturing,” Washington, D.C., 2010.
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While services offshoring may be growing rapidly, most studies find the extent of job losses from
services offshoring to be relatively small in the aggregate, but concentrated in a few industries
and occupations.26 Also most estimates do not take into this account the new jobs that offshoring
may create as a result of making domestic firms more competitive or jobs that are off shored back
to the United States. Thus, offshoring appears not to be on scale so far that is a major source of
job destruction, especially compared to the normal churning of jobs in the U.S. economy. Yet,
anecdotes of higher skilled and higher-educated computer programmers or medical technicians
being outsourced, combined with estimates by some reputable economists that one-quarter of all
U.S. jobs could be potentially off shore, generates fears over the kind of jobs that will be
available for American workers in the future. As a result, many more workers that have not been
affected by foreign competition in the past may now feel concern that global competition is a
potential threat to their job security and future earnings.27
Rising Income Inequality
A second source of anxiety or insecurity may stem from the impact that globalization,
immigration, and automation are having on the distribution of income in the United States. Under
this view, the pressures of the global marketplace and technological change have contributed to a
rising gap between the rich and the poor. For example, a recent report from the Congressional
Budget Office found that from 1979 to 2007, the average after-tax household income for the one
percent of the population with the highest incomes rose 275%. For the rest of the top 20% it rose
65%. But for the bottom 20% it rose just 18%.28
An OECD study also maintained that wealthiest Americans have collected the bulk of the income
gains over the past three decades. This analysis found that the share of national income of the
richest one percent more than doubled between 1980 and 2008, rising from eight percent to 18%.
The richest one percent now make an average $1.3 million of after-tax income compared to
$17,700 for the poorest 20% of U.S. citizens.29
The rising income gap may have been wider if lower-wage workers had not increased by more
than 20% the number of hours they worked over the past decade. According to the OECD, this
trend of increased hours worked has probably been linked to incentive policies such as the Earned
Income Tax Credit (EITC) and a relatively low minimum wage.30
The top income recipients tend to be in educational groups such as those with doctorates and
professional graduate degrees in business, law, and medicine. Workers with only high school
degrees or less, some college graduates, and nonprofessionasl with masters degrees tend to do
less well.31
26 See CRS Report RL32292, Offshoring (or Offshore Outsourcing) and Job Loss Among U.S. Workers, op. cit., pp. 7-
9, by Linda Levine; and CRS Report RL32484, Foreign Outsourcing: Economic Implications and Policy Responses, by
Craig K. Elwell.
27 Testimony of Alan S. Blinder, Princeton University, to the Joint Economic Committee, “Will the Middle Class Hold?
Two Problems of American Labor,” January 31, 2007.
28 Congressional Budget Office, Trends in the Distribution of Household Income Between 1979 and 2007, October,
2011.
29 OECD, Divided We Stand: Why Inequality Keeps Rising, Country Note: United States, 2011.
30 Ibid.
31 Kenneth F. Scheve and Matthew J. Slaughter, “A New Deal for Globalization,” Foreign Affairs, July/August 2007.
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A variety of explanations—trade with developing countries, foreign investment, an increase in
low-skilled immigration, the business cycle, skill-based technological change, and changes in
regulations and institutions—have been put forth to explain these income trends. But there is no
consensus on what weight each factor may have, thereby making it difficult to prescribe an
approximate policy remedy. Nor is it known whether these wage trends will persist. But it is clear
that the market, starting over two decades ago, turned strongly against less skilled and less
educated workers.32
Policy Approaches
The relationship between globalization and worker insecurity is complicated and uncertain. There
are many different components of globalization and it is not easy to discern which components
are most linked to rising worker insecurity. Most research indicates that trade plays only a limited
role in generating the economic losses or concerns, but that it gets most of the blame because of
its visibility, particularly in the guise of new trade agreements. While this report has identified
three components of worker insecurity—job losses, outsourcing fears, and rising income
inequality—there easily could be other material and psychological factors that are involved as
well. As a result, a number of different approaches might be required if ones goal is to maximize
American economic well being with the derivative need to bolster public support for
globalization and an open global economy.
Approaches involving adjustment assistance, education, taxes, and trade are most commonly put
forth in this context. Adjustment assistance is designed primarily to address job dislocation
concerns; education is generally considered a means to foster skill-sets demanded by a
globalizing economy, as well as a vehicle for promoting greater equality; tax policy is the primary
means of affecting changes in income distribution; and trade policy tends to affect the kinds of
jobs available in an economy, but not the overall level of employment.
Additional perspectives are offered at both ends of the political economy spectrum. At one end,
there are those who call for setting higher standards at home—a higher minimum wage, a union
friendly workplace, universal health care, stricter corporate governance laws, more research and
development support for new industries—as a way to create high wage jobs.33 At another end,
there are those who call for primary reliance on market forces and de-regulation as the best way
to promote robust economic growth and vibrant job creation.
A key question may be the extent to which any of these approaches 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 and flexibility
of labor and capital markets or raise barriers to international trade and investment would not be
helpful because technology and trade are critical sources of overall economic growth and
increases in the U.S. standard of living.34
What follows is a short description of the main policy approaches. Each section discusses how
each policy is intended to affect worker insecurity, as well as concerns and criticisms of the
32 Alan Blinder, JEC Testimony, p. 2.
33 Galbraith, James K., “Why Populists Need to Re-think Trade,” The American Prospect, May 10, 2007.
34 Bernanke, Ben S, “The Level and Distribution of Benefits,” 2007, p. 6.
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approach. None of the approaches alone may be an answer to the adjustment problems
globalization is posing for workers.
Adjustment Assistance
The primary government program to compensate U.S. workers who are disadvantaged by trade
competition is the Trade Adjustment Assistance (TAA) program.35 Established in 1962, the
program aids workers in certain industries if they can show that increased imports have
contributed importantly to a loss of jobs or that they were separated from their employment
because their jobs moved outside the United States. Workers certified for TAA can access a
variety of benefits including income support, job training, job search, and relocation allowances.
In 2002, the program was reformed and expanded. Secondary workers became eligible for TAA
benefits; a wage insurance or supplement was created for older workers; and a tax credit was
instituted to help trade-affected workers pay for health insurance.
Supporters of TAA, on the one hand, argue that the program can speed the adjustment process by
helping to return idle resources to work more quickly and compensate workers for lost income.
To the extent the program achieves these objectives, supporters believe that opposition to
globalization and trade liberalizing agreements can be reduced. TAA skeptics, on the other hand,
maintain that the program can reduce incentives for workers to relocate or take lower-paying jobs.
Many also argue that job losses associated with increased trade flows or foreign investment
should be accorded special treatment or status.36
TAA has had some notable successes over the past 30 years, particularly in the area of training.
While a number of studies suggest workers trained through TAA have had much better success in
finding jobs than workers who have not received training, many observers maintain that the
current program is too narrow, too bureaucratic, and underfunded to alleviate worker anxiety by
itself.
Education
While TAA focuses directly on those workers who appear to be visible losers from globalization,
some analysts believe that priority needs to be placed on ensuring that all Americans are in a
position to take advantage of globalization. Support for increasing the skill level of the labor force
through more education is based on the notion that higher skilled workers generally earn more,
have lower unemployment rates, and are more likely to be better able to adapt to changing
demands of the workplace.37 Some research also suggests that the higher rate of return to
education and skill training is likely the single greatest source of the long-term increase in
35 See CRS Report R42012, Trade Adjustment Assistance (TAA) for Workers, by Benjamin Collins. TAA also has a
firm and community component. For information of the firm program, see CRS Report RS20210, Trade Adjustment
Assistance for Firms: Economic, Program, and Policy Issues, by J. F. Hornbeck. Other forms of federal assistance
available for workers displaced by offshoring include the Worker Adjustment and Retraining Notification Act (WARN,
P.L. 100-379), and the Workforce Investment Act (WIA, P.L. 105-220). For more information on these programs, see
CRS Report 97-536, Job Training Under the Workforce Investment Act (WIA): An Overview, by Ann Lordeman.
36 CRS Report R41922, Trade Adjustment Assistance (TAA) and Its Role in U.S. Trade Policy, by J. F. Hornbeck and
Laine Elise Rover.
37 Janet L. Yellen, President and CEO, Federal Reserve Bank of San Francisco, Speech to the Center for the Study of
Democracy, November 6, 2006, p. 7.
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inequality. Thus, policies that boost national investment in education and training may also help
reduce inequality while expanding economic opportunity.38
Beyond the view that the provision of more education is a way for more workers to benefit from
globalization, there appears to be less consensus on what kind of education to emphasize. Does
the best return on government expenditures come from spending on early childhood development
and pre-school, primary school, high school or college? How much spending should be devoted
to improving math and science skills? What is the role for career-education and on-the-job
training? Should more money be put into federally subsidized retraining programs, particularly
for economically disadvantaged populations?
The OECD study emphasizes the important of two strands of education for preparing a workforce
for life in an increasingly competitive global economy. First, the report maintains that better job-
related training and education for the low-skilled via on-the-job training would help to boost their
productivity and future earnings. The second strand relates to access to formal education
throughout working life in order to acquire the skills needed in a dynamic economy.39
Nevertheless, given the increasing globalization of labor markets, the question also arises as to
what kind of skills to promote. Those at the top end of today’s income distribution have skills that
enable them to perform non-routine kinds of problem solving, often within the context of large,
complex, global operations. In contrast, an increasing share of domestic workers in the middle of
the wage spectrum have experienced lower demand because companies can now look all over the
world for workers able to perform computer programming tasks, communications tasks, and
similar jobs whose tasks can be routine zed but do not require face-to-face contact with others. In
this context, it is not self-evident what kind of education or training will foster labor skills that
will be immune to outsourcing and global competitive pressures in the future, other than that they
require face-to-face contact for work that does not involve codifiable information.40
Another consideration in evaluating education as a policy approach for dealing with worker
insecurity about globalization may be the amount of time for educational changes to achieve the
objective. One analyst maintains that education as a policy approach to worker insecurity could
take more than a generation to make a difference. For example, it took 60 years to boost the share
of college graduates in the work force from 6% at the end of WWII to 33% today, and that
required major government programs, such as the GI bill.41
Tax Policy
Calls for a more progressive form of taxation is one of the more recent policy approaches for
lessening resistance to globalization. Based on a view that the current pattern in U.S. income
distribution is the most pressing issue to address, a report funded by the country’s top financial
firms argues that some direct form of income redistribution is necessary for ensuring that
globalization’s benefits are shared more widely. Accordingly, the report calls for making the
38 OECD, An Overview of Growing Income Inequalities in OECD Countries: Main Findings, 2011.
39 Ibid.
40 Yellen, Janet p.5.
41 Shreve , Kenneth F., and Matthew J.Slaughter, p.5
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Federal Insurance Contribution (FICA) social security tax more progressive, either by integrating
it into the income tax or by adding progressivity into FICA itself.42
A number of tax policies such as the earned income tax credit, which supplements the earnings of
low-income workers, are already in place to diminish economic inequality. Most prominently, the
individual income tax’s graduated rate structure is progressive with higher income earners
assessed higher tax rates. Unemployment insurance cushions family income in the face of job loss
and illness. Of course, numerous other alternative tax changes are possible if the goal is income
redistribution. But the question whether government should move in this direction is
controversial.43
On the one hand, most economists maintain that some market determined income differences are
needed to create incentives to work, invest, and take risks. Without the incentives, economic
growth would be less robust to the detriment of everyone. Moreover, redistribution strategies
based on government transfers and tax changes alone would be unlikely to be effective or
financially sustainable in the long run. On the other hand, there are signs that rising inequality is
intensifying resistance to globalization and some observers maintain that it is important to act
quickly if public support for global integration is to be maintained.
Trade Policy
Trade policy can also play a role in reducing worker insecurity. Traditional U.S. policies toward
free trade agreements (FTAs) and unfair foreign trade practices, in particular, have been pointed
to by labor activists as contributing to job loss and job insecurity. If the United States adopted and
successfully implemented more muscular policies in these areas, proponents of this view posit
that some alleviation of job loss and worker anxiety could materialize.
Bilateral and regional FTAs and U.S. FTAs with countries such as Canada, Mexico, Chile, and
Australia have played a role in accelerating the integration of global markets. Through a mutual
reduction in trade barriers, countries entering into an FTA accelerate specialization in production
and trade. By opening new opportunities for the export of U.S. goods and services, FTAs support
jobs associated with increased exports. At the same time, some U.S. jobs and production shift to
FTA partners who can offer lower costs of production, including labor cost. While most labor
activists accept that lower labor costs are a legitimate source of comparative advantage that many
developing countries can offer, they challenge any incremental cost advantage that these countries
may gain from the suppression of workers’ rights.
To deal with concerns raised by unfair worker rights practices, a bipartisan policy position was
agreed to by congressional leadership and the Bush Administration. As outlined in the “New
Trade Policy for America,” U.S. FTAs will begin incorporating enforceable labor standards. Thus,
countries that sign an FTA with the United States will have to allow collective bargaining and
abolish forced labor, among other requirements. But it is uncertain how much relief this provision
will provide for American workers. According to one analyst, no matter how free developing and
newly industrializing country workers are to organize, they are still going to be paid very little,
42 Financial Services Forum Report, “Succeeding in the Global Economy: A New Policy Agenda for the
AmericanWorker, 2007, p. 45.
43 Yellen, Janet, p.8.
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(Mexican wages are only 11% of the U.S. level and Chinese wages 3% of the U.S. level) and
trade is likely to continue to pressure U.S. wages.44
U.S. efforts to eliminate foreign country unfair trade practices could also serve to reduce
pressures on workers. Foreign practices such as subsidies and predatory pricing strategies can
encourage a shift in investment and employment to their markets, thereby displacing U.S.
workers. From the perspective of U.S. workers whose jobs are displaced by these kinds of foreign
government interventions, the financial and psychic costs of dislocation are not insignificant.
Accordingly, some maintain that a forceful U.S. policy towards these practices may be justified in
order to prevent unnecessary job displacement and churning in the domestic economy, although
measures that restrict trade are likely to be opposed by stakeholders who may be disadvantaged
by higher import prices.45
Nevertheless, as economists constantly point out, the role of trade policy in preserving or creating
jobs in the overall economy is very limited. While trade policy measures to increase market
access for U.S. exports and investments or to impose restrictions on U.S. imports can affect the
composition of employment, the overall level of employment is determined primarily by fiscal
and monetary policies and by business cycles. Dislocation, moreover, is an inevitable byproduct
of capitalism, with or without trade.
Domestic Standards
Finding ways to create more high-wage jobs in the United States is another approach that has
been proposed for helping those who lose out to the global economy. A number of different
elements are sometimes included in this approach, including a higher minimum wage, universal
health care, a union-friendly workplace, and expanded funding for research and development for
new industries, particularly in the area of alternative energy.46
This approach is based largely on the model of universal unions, high minimum wages, and
strong welfare state benefits provided by Norway and Sweden. These two Scandinavian
countries, which enjoy among the lowest unemployment rates in Europe, are highly open to
international trade and to job churning (hiring and firing) in their economies. In the view of one
proponent, the key to their success is high wages. Firms are not free to compete by undercutting
the union rate, but must try to keep productivity high if they are to survive.47
The premise of this high standards job creation approach is that the foundation of a strong
American middle class rests with laws, regulations, and standards developed at home. Instead of
worrying about what impact trade with low-wage developing countries has on U.S. wages, this
approach maintains that a high-wages domestic economy will have a favorable impact on trade.
“The big problem is simply that unions, laws, regulations, and standards have been undercut by
conservative policymakers, right here at home.”48 A high-wage strategy, of course, depends on the
44 Krugman, Paul, “Divided Over Trade, New York Times, May 14, 2007, p. 16.
45 Drezner, Daniel W., Council on Foreign Relations, “U.S. Trade Strategy: Free Versus Fair, 2006.
46 Galbraith, James, K. “Why Populists Need to Re-think Trade,” American Prospect, May 10, 2007 - web only
version.
47 Ibid., p.7.
48 Ibid.
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ability of companies to invest in capital and technology to generate high labor productivity to pay
for the wages.
Free Markets and Limited Government
In stark contrast to the domestic standards job creation approach, this approach touts the
principles of free enterprise, open markets, and limited government as the best way to achieve
economic prosperity and security for all Americans. The basic idea of this approach is that
individuals are best helped not by government intervention, but by making their own choices in a
free marketplace.49
Under this view, today’s global economy provides unprecedented opportunities for the United
States to derive large-scale economic benefits. Free trade policies are seen as creating higher-
paying jobs for a growing number of Americans working in export-oriented industries. High
corporate tax rates, a relatively high minimum wage, domestic subsidies, and weak protections of
property rights are viewed as the real threats to American jobs.50
When it comes to policies for alleviating worker anxiety, most supporters of this school of
thought oppose government programs that redistribute income or protect workers from market
forces. Rather, many supporters of this approach urge a focus on removing barriers to job
creation, as well as various forms of retraining and relocation aids to help workers find new jobs
in a growing economy.
Author Contact Information
Raymond J. Ahearn
Specialist in International Trade and Finance
rahearn@crs.loc.gov, 7-7629
49 Griswold. Daniel, “Free Trade, Free Markets: Rating the 108th Congress,” CATO Institute, Center for Trade Policy
Studies, No. 28, March 16, 2005.
50 Markheim, Daniella, “Why Free Trade Works for America,” Heritage Foundation, Backgrounder No. 2024, April
16, 2007.
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