Globalization, worker insecurity, and policy approaches.(CRS Report for Congress)

 
Contents 
 
Introduction 
 
Trends Driving Global Economic Integration 
    Technology 
    Global Labor Supply 
    Government Policy 
 
Sources of Worker Insecurity 
    Job Losses and Fears 
    Rising Income Inequality 
 
Policy Approaches 
    Adjustment Assistance 
    Education 
    Tax Policy 
    Trade Policy 
    Domestic Standards 
    Free Markets and Limited Government 

Globalization, Worker Insecurity, and Policy Approaches

Introduction

The U.S. economy is becoming increasingly open to the world economy. With international trade and investment at record levels, 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. (3) 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. (4)

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 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. (5) 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. (6)

At the same time, greater global economic integration 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. (7) Increased economic 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. (8)

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. (9) Moreover, popular insecurity may be raising concerns that the process of economic integration will be interrupted or reversed. (10)

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, the House Democratic leadership stated in 2007 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. (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 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. 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. (14)

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 …