Question

Does trade put downward pressure on U.S. wages? Provide evidence and an example to support your argument.

Answer 1

Yes! It holds true for low skilled worker.

America currently imports more manufactured goods than it has in decades, the proportion of which is increasing from low-wage countries. Recent research focusing on China's entrance into the global economy indicates that it causes job losses in the US, especially in the sense of steeper job losses after 2000. Obviously, globalization has given workers a range of advantages. Trade has reduced the price of goods, helping to increase real wages, and exports can also be a significant cause of efficiency and wage growth.

However, US imports are more likely to be generated by low-skilled laborers than U.S. exports, which indicates that trade will reduce wage growth pressures for low-skilled employees.

Although globalization plays a role, most research shows that the decrease in labor demand for poorly qualified workers is not the principal reason for it. Another important factor is the technological change which increases the relative productivity of skilled workers. An example of how technological innovation can affect other workers 'groups is given by the manufacturing industry. As seen in the figure on the right, US production has steadily increased since 1973, almost doubling over 40 years while manufacturing jobs have declined dramatically. The rise in productivity in manufacturing was followed by a transition from the poorly skilled to the highly trained industry employees.

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