Impact of NAFTA on Jobs in US and Canada

Question

 

(Juann H. Hung and Priscila Hammett, “Globalization and the Labor Share in the United States.”)

Research interest in this issue has revived in part because the labor share appears to have

been declining among industrial countries since the early 1980s. In the United States,

that decline came later; but it too became noticeable since the early 1990s and especially

after 2000.

is it mainly driven by the rapid rise in globalization (including labor migrations, trade flows, cross-border investments, offshoring of services, and integration of global supply chains), as alleged by many? Or, was it mainly due to the technology shift toward labor-saving production?

#redistributional effects

(McLaren and Hakobyan, “Looking for Local Labor Market Effects of NAFTA.”)

  • Bernard, Jensen, and Schott (2006) find that imports from low wage countries have much more pronounced effects on the survival probabilities of US plants in the same product category than imports from other locations.
  • Ebenstein et. al. (2009) show that offshoring to low-wage countries is associated with reductions in US employment in the same industry, while offshoring to high-wage countries has the opposite effect.
  • Autor, Dorn and Hanson (2011) show that a rise in China’s share of imports reduces wages in US localities where employment is concentrated in the affected industries.
  • This case study provides another example of the observation made by Rodrik (1994) that trade policy tends to be characterized by large redistributional effects and modest aggregate welfare effects, and hence emphasizes once again the importance of identifying the effects of trade on income distribution (see Harrison, McLaren and McMillan (2010) for a recent survey).

 

#redistributional effects

(Mumme, “Trade and Environmental Protection along the United States-Mexico Border.”)

Even the most dogmatic trade religionists admit that liberalised trade aggravates economic differences, certainly in the short run, that trade liberalisation is inherently redistributive, that it shifts wealth creation from low skills to high skills venues, and that its benefits normally flow to those best positioned to engage the new rules

#proposed solutions

(Perez-Batres, “Efficient Labor Reallocation and the Liability of Localness.”)

Proposed solution for job loss:

  • Retraining programs to acquire new skills
  • Relocate to a new place

 

(Taylor, Timothy, “The Truth about Globalization.”)

Issue #1: Unemployment

  • Ross Perot predicted a rise in US unemployment because of NAFTA. For the following seven years after NAFTA was signed, unemployment in the US dropped to the lowest
  • International competition can cause reallocations of jobs from one industry to another. It is often described as unemployment but it is "displaced workers"
  • That being said it makes labor workers vulnerable to lower wages and life disruptions
  • But why are workers pushed out of jobs?
    • Tougher domestic competition may force a downsizing
    • A shift in consumers' taste
    • Key consumers may reduce or cancel purchases
    • The technology may change
    • Competition from international trade
  • What is the fix?
    • Unemployment insurance and other welfare programs
    • Wage insurance
    • Retraining

 Issue #2: A decline in wages

  • Productivity increases wages and globalization increases productivity so indirectly it increases wages but it increases inequality or the gap between high and low income.
  • Low wage workers in developed economies may suffer because of low wage workers in other countries but most of the impact is because of the advances in technology and communication which drives the market to pay higher premium for skilled workers.
  • Only one-fifth of the rise in inequality in the US is attributed to global trade but why its impact is small:
    • More than half of the American imports come from developed nations with high wages such as Europe, Canada and Japan and only one quarter comes from low wage nations such as Mexico and China
    • Most of the low wage workers in the US are in the service sector. Imports do not compete much with services such as hotel cleaning and yard work
    • The timeframe of the rise in inequality in the US vs that of globalization does not match suggesting that other factors such as education, unionization, taxations and others have a more powerful impact.
  • For developing economies, the poorest usually live in rural areas isolated from the global economy and while the benefits of globalization may not be distributed evenly in developing nations, it makes no sense to revers policies that benefits the most just because of that reason.
  • The view that the wealth of a nation grows based on controlling greater quantity of land, resources and labor dominated the 20th century but it is outdated. Instead it depends on skilled workers taking advantage of advanced technology in a market-oriented environment.

The gust of it is that globalization is an avenue where help from high income nations can reach to the poor nations but it may not arrive sufficiently nor spent effectively so it needs to be coupled with a combination of institutional reform and practical policies.

 

Summary

This question belongs to strategic management and discusses the impact of NAFTA on jobs in US and Canada.

Contents

  • Abstract
  • Introduction
  • Research Methodologies.
  • Literature Review
  • Impact on Jobs in USA and CANADA after NAFTA
  • Brief History and Purpose of NAFTA
  • Data Analysis
  • Advantages and Disadvantages of NAFTA
  • Discussion
  • Effect on USA and Canada
  • Future for NAFTA
  • Conclusion
  • References

 

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