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Rise in the Freelance Economy. The Bottom Line The phenomenon of job outsourcing in the United States provokes great economic contention. On the other, it has hurt employment, raising the unemployment rate particularly in these hardest hit sectors: Manufacturing Technology Call centers Human Resources Although U.
Article Sources. Your Privacy Rights. Further academic confirmation of the impacts of China trade on manufacturing employment is provided by Pierce and Schott The authors use an entirely different estimation technique based on differences in the pre- and post-China WTO entry maximum tariff rates, with and without permanent normal trade relations status PNTR , which the U.
Pierce and Schott estimate the impacts of changes in U. They do not translate percentage-point changes in employment into total jobs displaced, but data on changes in total manufacturing employment in this period provide a base of comparison.
The United States lost 2. If Thus, two other recent academic studies have confirmed that the growing U. The direct wage effects are a function of the wages foregone in jobs displaced by growing U. Scott a estimates the gains and losses associated with direct changes in employment caused by growing U. However, this assumption is proven incorrect in Scott a , which showed that import-competing jobs pay better than alternative jobs in export-producing industries.
Therefore, simple trade expansion which increases total trade, with no underlying change in the trade balance, will result in a net loss to workers as they move from higher-paying jobs in import-competing industries to lower-paying jobs in exporting industries. Between and , growing exports to China supported , U. Thus, not only did workers lose wages moving from import to export industries, but 2.
In total, U. But the direct wage losses are just the tip of the iceberg. As shown by Josh Bivens in Everybody Wins Except for Most of Us a, results updated in Bivens , growing trade with China essentially puts all American workers without a college degree roughly million workers in direct competition with workers in China and elsewhere making much less. He shows that trade with low-wage countries was responsible for 90 percent of the growth in the college wage premium since the college wage premium is the percent by which wages of college graduates exceed those of otherwise equivalent high school graduates.
The growth of China trade was responsible for more than half of the growth in the college wage premium in that period, Bivens finds. To put these estimates in macroeconomic terms, in , trade with low-wage countries lowered annual wages by 5.
Additionally, Autor, Dorn, and Hanson estimate that rising exposure to low-cost Chinese imports lowers labor force participation and reduces wages in local labor markets; in particular, they find that increased import competition has a statistically significant depressing effect on nonmanufacturing wages Autor, Dorn, and Hanson , abstract, This confirms the findings of Bivens a, The growing trade deficit with China has clearly reduced domestic employment in traded-goods industries, especially in the manufacturing sector, which has been pummeled by plant closings and job losses.
Workers from the manufacturing sector displaced by trade have had particular difficulty securing comparable employment elsewhere in the economy. According to the most recent Bureau of Labor Statistics survey covering displaced workers BLS , nearly two-thirds The average wage decline for those who were reemployed was Worse yet, growing competition with workers in China and other low-wage countries reduced the wages of all million U.
The lost output of unemployed workers, especially that of labor force dropouts, can never be regained and is one of the larger costs of trade-related job displacement to the economy as a whole.
Trade adjustment assistance is a Bureau of Labor Statistics program to provide retraining and unemployment benefits to certain workers who were displaced by growing imports. However, new research suggests that a significant share of displaced workers are signing up for permanent disability payments, rather than for temporary trade adjustment assistance, thereby increasing the number of permanent labor force dropouts.
Autor and Hanson find that increases in disability payments are more than 30 times larger than the estimated dollar increases in trade-adjustment assistance payments for trade-displaced workers.
Some economists and others in the trade debate have argued that job loss numbers extrapolated from trade flows are uninformative because aggregate employment levels in the United States are set by a broad range of macroeconomic influences, not just by trade flows.
Between December and December , 3. The growth of the U. Thus, manufacturing job loss due to the growing trade deficit with China accounts for nearly two-thirds of all U. The Federal Reserve, for example, may decide to cut interest rates to make up for job losses stemming from deteriorating trade balances or any other economic influence , leaving net employment unchanged.
This, however, does not change the fact that trade deficits by themselves are a net drain on employment. Many of the mechanisms that could offset employment losses caused by growing trade deficits are not operating in the current economic climate. The Federal Reserve cannot cut interest rates any further than it already has, and interest-rate-sensitive industries such as residential construction are not experiencing employment gains from lower rates.
The job and wage losses from the growing U. Especially since this is a solvable problem: The increase in the U. A major cause of the rapidly growing U. Unlike other currencies, the Chinese yuan does not fluctuate freely against the dollar. How do we know China has manipulated its currency? But the yuan has instead remained artificially low as China has aggressively acquired dollar-denominated assets such as U.
Treasury bills and other foreign exchange reserves to further depress the value of its own currency. To depress the value of its own currency, a government can sell its own currency and buy foreign government securities, which increases its foreign reserves.
Treasury bills and other securities to suppress its currency against the U. This intervention makes the yuan artificially cheap relative to the dollar, effectively subsidizing Chinese exports. Although the yuan has appreciated significantly since , economist H. China is the most important currency manipulator, based on both its massive currency intervention over the past decade and its share of global current account surpluses. And China is the most important competitor for the United States in all other third-country markets, even more important than Germany and all other members of the European Union combined.
By manipulating its currency, China has compelled other countries to follow similar policies in order to protect their relative competitiveness and to promote their own exports. This widespread currency manipulation has also contributed to the growth of very large global current account imbalances; there are currently many countries with large surpluses or deficits. Unless China raises the real value of the yuan by at least a third and eliminates other trade distortions enumerated later in this section , the U.
Although China did respond to international pressure between and and allowed some appreciation in the yuan, it was too little and too late to help arrest the widening U. The Chinese yuan actually fell 1. Gagnon recommends that the rules of the WTO be changed to allow countries to impose tariffs on imports from currency manipulators. One strategy would be to tax or otherwise restrict purchases of U. In addition, Congress can help end currency manipulation by passing pending legislation H.
In addition, the president and federal agencies possess the tools needed to end currency manipulation with the stroke of a pen Scott b.
The Treasury and Federal Reserve have the authority needed to offset purchases of foreign assets by foreign governments by engaging in countervailing currency intervention Bergsten and Gagnon By taking these steps, the U.
A recent report from EPI shows that full revaluation of the yuan and other undervalued Asian currencies would reduce the U. It would also benefit other countries. The undervaluation of the yuan has put the burden of global current account realignment pressures on other countries such as Australia, New Zealand, South Africa, and Brazil, whose currencies have also become overvalued with respect to those of China and other currency manipulators. Other Chinese government policies also illegally encourage exports.
China extensively suppresses labor rights, which lowers production costs within China. China also provides massive direct export subsidies to many key industries see, for example, Haley , , Finally, it maintains strict, nontariff barriers to imports. Some actions have been taken in response. In September , the Obama administration announced that it would take action to restrict imports of Chinese tires for three years under special safeguard measures, the first time since that these measures had been utilized USTR , and Alliance for American Manufacturing Trade Representative, accusing China of illegally stimulating and protecting producers of green technology exports, ranging from wind and solar energy products to advanced batteries and energy-efficient vehicles.
Indeed, the U. The USW petition details more than 80 Chinese laws, regulations, and practices that violate international trade agreements and have hurt U.
This was the seventh complaint filed by the administration against China, and the previous six had all been successful Scott b. President Clinton and many others argued that since U. China is the largest recipient of FDI of all developing countries Xing and is the third-largest recipient of FDI over the past three decades, trailing only the United States and the United Kingdom. Outsourcing—through foreign direct investment in factories that make goods for export to the United States—has played a key role in the shift of manufacturing production and jobs from the United States to China since China entered the WTO in Another critically important promise made by the promoters of liberalized U.
However, despite widespread reports of the rapid growth of the Chinese middle class, this growth has not resulted in a significant increase in U. The most rapidly growing exports to China are bulk commodities such as grains, scrap, and chemicals; intermediate products such as semiconductors; and producer durables such as aircraft and non-electrical machinery see the discussion of Table 2 earlier in this paper, and Supplemental Table 5 at the end of this report.
Furthermore, the increase in U. The growing U. Moreover, the United States is piling up foreign debt, losing export capacity, and facing a more fragile macroeconomic environment. The answer is not clearly affirmative. China has become dependent on the U. Although economic growth in China has been rapid, it is unbalanced and unsustainable. Recently, growth in China slowed to 7. Its repression of labor rights has suppressed wages, thereby artificially subsidizing exports.
China needs to rebalance its economy by becoming less dependent on exports and more dependent on domestic demand led by higher wages and infrastructure spending. Addressing the exchange rate policies and labor standards issues in the Chinese economy are elements of an important first step. It is time for the administration to respond to the growing chorus of calls from economists, workers, businesses, and Congress and take action to stop illegal currency manipulation by China and other countries Scott c.
Robert E. Scott joined the Economic Policy Institute in and is currently director of trade and manufacturing policy research. His areas of research include international economics, trade and manufacturing policies and their impacts on working people in the United States and other countries, the economic impacts of foreign investment, and the macroeconomic effects of trade and capital flows.
He has a Ph. Will Kimball joined EPI in He has a B. The authors thank Ross Eisenbrey and Josh Bivens for comments. This research was made possible by support from the Alliance for American Manufacturing. The trade and employment analyses in this report are based on a detailed, industry-based study of the relationships between changes in trade flows and employment for each of approximately individual industries of the U.
Census Bureau and the U. This study separates exports produced domestically from foreign exports—which are goods produced in other countries, exported to the United States, and then re-exported from the United States.
Because only domestically produced exports generate jobs in the United States, employment calculations here are based only on domestic exports. The measure of the net impact of trade used here to calculate the employment content of trade is the difference between domestic exports and consumption imports.
So, in the auto industry for example, the indirect impacts include jobs in auto parts, steel, and rubber, as well as service industries such as accounting, finance, and computer programming that provide inputs to the motor vehicle manufacturing companies.
This model estimates the labor content of trade using empirical estimates of labor content and goods flows between U. It is not a statistical survey of actual jobs gained or lost in individual companies, or the opening or closing of particular production facilities Bronfenbrenner and Luce is one of the few studies based on news reports of individual plant closings.
Nominal trade data used in this analysis were converted to constant dollars using industry-specific deflators see next section for further details. This was necessary because the labor requirements table was estimated using price levels in that year.
Data on real trade flows were converted to constant dollars using industry-specific price deflators from the BLS—EP b. These price deflators were updated using Bureau of Labor Statistics producer price indexes industry and commodity data; BLS b. Use of constant dollars was required for consistency with the other BLS models used in this study. Step 1. Consumption imports and domestic exports are downloaded for each year.
Step 2. The trade data, which are in current dollars, are deflated into real dollars using published price deflators from the BLS—EP b and the Bureau of Labor Statistics b.
Step 3. Job equivalents. BLS trade data are compiled into matrices. To estimate the jobs displaced by trade, perform the following matrix operations:.
The employment estimates for retail trade, wholesale trade, and advertising were set to zero for this analysis. We assume that goods must be sold and advertised whether they are produced in the United States or imported for consumption. State-by-state analysis. Census Bureau data for and are mapped into 45 unique census industries and eight aggregated total and subtotals for a total of 53 sectors. To get state total job displacement, we add up the subsectors in each state. Employment by congressional district, by industry, by state is obtained from the ACS data from , which for the first time use geographic codings which match the boundaries of the th Congress elected in Each state has Y congressional districts, so [ Cd i ] is defined as the 45x Y matrix of congressional district employment shares for each state.
Congressional district shares are calculated thus:. To get total job displacement by congressional district, we add up the subsectors in each congressional district in each state. The th Congress met in and This investment helps boost those countries' economies by improving their standards of living and providing jobs for the unemployed. With these economic improvements in foreign countries, this allows them to be a part of the global market by enabling them to buy more exports from the U.
Economic developments in this country have a major influence on production, employment, and prices beyond our borders; at the same time, developments abroad significantly affect our economy. Further, because of the enormous size of the U. Reserve Bank of NY, Jan. This results in U. When U. Foreign investors pull in other outside investment as the foreign economy grows. This benefits U. For example, the U.
Components of these aircraft are outsourced to manufacturers in Italy and Switzerland to boost these economies and to aid U. The value to the U. Whether through an offset program or as a stand-alone import of goods, outsourcing tends to allow the U. Cost of labor in the U. Outsourcing promotes globalization, which is a new source of growth for U. These figures are based on the U. Bureau Labor Statistics hourly direct pay data, www.
One of the most pointed-out arguments against outsourcing is the concern of jobs being lost in the U. Companies that outsource to foreign countries tend to hire less skilled workers whenever the work does not require a high skill level to manufacture products.
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