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For years and publicly, as recent as the last presidential election, there is rampant debate over the negative impacts of firms moving production plants overseas. Some called for less dependency on foreign countries, others for higher taxes to disincentivize American corporations. The discord stems from the view that the trade deficit decreases the demand for less-skilled workers, thus wages are falling and unemployment is rising. In his paper “Are Your Wages Set in Beijing?”  Richard Freeman explores the questions: Are the wages and employment of low-skill workers in developed countries determined by global, rather than domestic, supply of low-skilled labor? What factors decreased the demand for low-skill labor in advanced countries? To what extent is trade with less-developed countries reducing demand for low-skilled labor in developed countries?

The concern, as reflected by employment and wage data of low-skilled workers, is that increased trade between advanced countries and developing countries will result in a downward shift of the labor demand curve in advanced countries. In the long run, labor supply will shift upwards, which could have a positive impact on wage as there are fewer low-skill workers. Another concern related to changing labor markets is income inequality, which the author mentions. The relevant model is the Lorenz Curve, which can be used to reflect the changes in income distribution due to shifts in the demand (and supply) for higher-skilled workers. This will be reflected in an increased convexity of the Lorenz Curve, great income inequality. However, Freeman finds that “trade can account for 10-20 percent of the overall fall in demand for unskilled labor needed to explain rising wage differentials in the United States or rising joblessness in Europe” (25).

(Paper read in Economics of Social Issues)

For my senior paper, I researched the impact of incarceration on post-release employment. I focused on men convicted of low-skilled crimes, typically from low socioeconomic backgrounds. Near the end of my paper, I started to wonder if the negative effect of incarceration on employment opportunities is not due to the status of imprisonment but due to the diminishing low-skilled labor market. The loss of human capital, social capital, and positive association may have been pertinent prior to the progress in globalization, as explained above. Now, is the “incarceration effect” due to an evolving domestic economy or still due to association with criminal status?

One Comment

  1. We just had a visitor present a paper on the possible impact of structural shifts in “computer-complemented” vs other jobs, tied to where in the wage spectrum they lie and how that’s changed. Part of the answer does seem to be this sort of structural shift, basically with no connection to international trade or manufacturing (though the latter is part of the larger set of sectors). Part is that those with higher skills really do gravitate towards these computer- or math-intensive jobs. But incarceration breaks the chain that might link people into this job market. So I think your focus really is central.

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