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Globalization and the Labor Market

October 16, 2011

Steve Rattner was President Obama’s “Car Czar,” helping lead the team that restructured General Motors into a profitable company. His experience in that role has been criticized, but it is a fair statement to say he understands the impact of globalization on the manufacturing sector in the United States.

In today’s New York Times his opinion piece is entitled Let’s Admit It:  Globalization Has Losers. The article makes the obvious point that when labor costs in auto manufacturing for General Motors cost $56 per hour in the United States and $7 per hour in Mexico, many of those jobs are likely to go to the market with lower labor costs. Over time, this has resulted in a shrinking of manufacturing jobs as a percentage of the labor force from 32% fifty years ago to 9% today. However, most of those job losses had occurred by the time the financial crisis hit in 2008.

The suggested response by some is to enclose the U.S. economy from other world economies by enacting protectionist barriers (tariffs, import taxes). This would, of course, affect goods bought and sold in the United States, but would make U.S. goods more expensive in foreign markets. In addition, as a Moody’s analyst has said

Earnings from abroad have become more important to U.S. companies. That trend has been in place for a couple of decades now, but really in the past decade we’ve seen the share of earnings coming from abroad as a share of the total increase rather dramatically . . . .

Globalization means that no one country will be able to remove its markets from the global economy. It must learn to adapt.

Rattner argues that we should concentrate on products where we have an advantage.

While America still leads in sectors like defense and aviation, our greatest strength, and a source of high-paying jobs, lies in service industries with high intellectual content, like education, entertainment, digital media, and yes, even financial services. Facebook, Google and Microsoft are all American creations, as are the global credit card companies American Express, Visa and MasterCard.

His piece concludes by referring to the Kauffman Foundation’s focus on entrepreneurship and recommendations which include

providing visas to entrepreneurs, easing access to public financing markets and reform of the patent and regulatory apparatus.

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