Globalization and the Income Slowdown

Derek Thompson of The Atlantic offers a thoughtful response to our list of 14 potential causes of the great American income slowdown: When I write about income stagnation apart from Great Recession, I typically rely on a trio of explanations: Globalization, technology, health care. Competition drives down costs. Shoppers understand this, intuitively. One reason that flat-screen TV prices have fallen so much in the last 10 years is that so many electronics companies have gotten efficient at making them. Similarly, competition for jobs in tradable goods and services, manufacturing that could be done in China; retail that’s simpler on Amazon, competes down the price employers pay workers in those industries. It makes many workers borderline-replaceable, nothing borderline-replaceable is expensive. Those forces drove down wages, employer-side health care costs gnawed at the rest of it. In my exchanges with economists so far, globalization is certainly among most commonly cited factors for income slowdown. American workers today face vastly more competition from foreign workers, especially foreign workers who earn much less money than the typical American, compared with past decades. Benjamin Friedman, a Harvard professor and the author of ambitious economic history “The Moral Consequences of Economic Growth”, told me he would put global competition and technological change at the top of his list of causes, with education slowdown (which, he noted, interacted with technological change) and cultural norms not far behind. Mr. Friedman pointed to Lucian Bebchuk’s research on soaring executive pay as an example of how much norms had changed. In his next bucket of importance, Mr. Friedman listed health costs, an innovation plateau, the minimum wage, family structure and immigration. Immigration, he said, largely affects workers at the bottom end of income spectrum. Stephen S. Roach, longtime Morgan Stanley economist and China expert who now teaches at Yale, offered a list with some strong similarities to Friedman’s. Mr. Roach put global competition, the educational slowdown and the innovation plateau at top of his list, followed by automation, deregulation, rising health costs, immigration, falling minimum wage. He also said supply chain explosion, “rapid growth of the integrated global production platforms that squeeze labor income at all stages of the production process”, deserved a place on the list. I’d probably argue that the supply chain was a subset of either globalization or automation, but I see why someone else might list it as a separate factor (…..)

Link: http://economix.blogs.nytimes.com/2012/08/21/globalization-and-the-income-slowdown/

Acerca de ignaciocovelo
Consultor Internacional

One Response to Globalization and the Income Slowdown

  1. Professor Uziel Nogueira says: Globalization = economic and trade integration that creates, inevitably, winners and losers within a country and outside. In the US, institutional investors and rich individuals (the 1% posse) win big time investing in profitable US-based transnational companies such as Apple. White and blue collar workers (the 99% crowd) in sectors highly exposed to overseas competition, particularly manufacturing, are hard hit by a double whammy: loss of good paying jobs and depressed wages. While globalization and automation create few winners (investors) and millions of losers (workers) in the US, the situation is quite the opposite in Asia. Japan was the first country in Asia to utilize globalization as a powerful instrument to reach full employment, create well paid jobs and become rich and prosperous. It has been followed by South Korea and China lately. For those countries, globalization is a win-win situation which is propelling China to superpower status in this new century.


    Besides jobs and wages downside, globalization has had a more ominous impact on the US political system. Income became highly concentrated in the hands of a few. Furthermore, the electoral process no longer reflects the wishes and needs of the majority but of a few group of rich people and individuals. The US democratic system and super power status are being debilitated day by day. One major reason is the unintended consequence of globalization i.e., few riches/millionaires and millions of poor.

    http://economix.blogs.nytimes.com/2012/08/21/globalization-and-the-income-slowdown/

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