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March 31, 1997
Economist Lori Kletzer explores link between international trade and U.S. jobs
For years, union organizers and labor activists have urged consumers to "buy American" as a show of support for American workers. But does buying a Volvo really put U.S. autoworkers out of work? Does increasing foreign competition actually depress U.S. wages?
Economists disagree. At UCSC, labor economist Lori Kletzer (photo) is embarking on a 12-month research project designed to improve our understanding of the impact of free trade on American jobs.
"This has been a policy debate forever," said Kletzer. "At the same time that the U.S. has relaxed trade restrictions, we're experiencing growing income inequality and declining wages for less-skilled workers. Economic theory says the two could be related, but we don't know for sure."
It's difficult for economists to separate out all the factors--in addition to trade--that could be influencing wages, said Kletzer. Like technology.
"Since the industrial revolution, technological change has displaced low-skilled workers and caused their wages to fall," said Kletzer. "Computers are the latest wave of technology, and they're increasing demand for high-skilled workers while lowering demand for low-skilled workers."
Of course, heated competition often leads to innovations, which can trigger the technological changes that displace workers, further blurring the distinctions between what actually causes job loss.
Moreover, if wages in only a handful of industries are affected, economists are reluctant to validate the impact. "Some economists say that if it's not generally true across all industries, it can't be important," she said.
Kletzer has been invited to weigh in on this debate at a prestigious conference sponsored by the National Bureau of Economic Research. The conference, titled "Trade and Wages," will take place in February 1998, but a preconference planning session at which Kletzer will outline her research is scheduled for April 5.
Kletzer is going to approach the question by focusing on manufacturing job loss and job displacement rather than wages. "Companies can close their plants--or greatly reduce employment--as an alternative to lowering wages," said Kletzer. "So, as a labor economist, I think that looking at job loss is a better measure of impact."
Ascertaining what fraction of job loss occurs because of trade is tricky, but Kletzer will look at about 100 manufacturing industries for evidence. For example, in the apparel industry, Kletzer will look at the growing share of the market controlled by China and see if there is a corresponding drop in U.S. apparel employment.
"My suspicion is that trade will prove to be an important factor in a small number of industries, like autos, electronics, and apparel, and will have a much smaller impact on other industries," said Kletzer, whose work, when it is completed, will provide an economy-wide picture of the impact of trade on U.S. jobs.
But she doesn't plan to stop there. Kletzer also wants to follow the trail of displaced workers.
"I want to look not only at who loses a job but when they lose it and where they go," said Kletzer, who suspects there is little retraining or crossover from one industry to another. "I believe people have specific skills, and when a plant closes, that's a loss of human capital."
In the long run, federal and state retraining programs don't appear to help much, noted Kletzer, who said taxpayers "might be better off just giving displaced workers income support."
A better understanding of the impact of trade on jobs is key to the development of policies that will help those who suffer in this era of free trade, said Kletzer, who is eager to share her findings with policy makers. "I think it would be great to testify before Congress," she said.
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