September 22, 2013

IS INCOME INEQUALITY THE RESULT OF FREE TRADE?

It’s not just wages. In fact, in many ways wages are the least of the problems; wages can be finessed with transfers or the higher consumption possibilities created by trade. Rather, I’d argue that the biggest problem is simply the disappearance of reliable jobs. A large swath of Americans without college diplomas have no sense that they can build a stable life for themselves. Even if you get a job at $9 or $10 an hour, it could disappear at any moment, and you could be back to minimum wage, or nothing.

Yet if trade is the problem, a policy solution isn’t obvious. When there’s a surplus of workers, and employers are competing with even lower-wage labor, then unions or higher minimum wages are a recipe for unemployment, not prosperity: Some workers are better off, but others work for manufacturing firms building products on thin margins — companies that eventually give up and move their operations to China. Protectionism might benefit those workers, but creates other big problems, like giving domestic manufacturers an oligopoly to exploit with high-cost, low-quality products. Then there’s the fact that we’re helping comparatively rich Americans by dooming comparatively poor Chinese people to lose their jobs.

Nor do transfers seem ideal — necessary, maybe, yet also curiously inadequate. A disability check is a poor substitute for a job, from both the recipient and the taxpayer’s perspective. The sort of person who prefers a disability check to a decent job is the only person we don’t want to help.

Related: Chart of the Day: Median income in DC vs the rest of us.

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