Blue-Collar Blues: Is Trade to Blame for Rising US Income Inequality?

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Table of Contents

Overview

International trade accounts for only a small share of growing income inequality and labor-market displacement in the United States. Lawrence deconstructs the gap in real blue-collar wages and labor productivity growth between 1981 and 2006 and estimates how much higher these wages might have been had income growth been distributed proportionately and how much of the gap is due to measurement and technical factors. While increased trade with developing countries may have played some part in causing greater inequality in the 1980s, surprisingly, over the past decade the impact of such trade on inequality has been relatively small. Rising income inequality and slow real wage growth since 2000 reflect strong profit growth and dramatic income gains for the top 1 percent of wage earners, a development that is more closely related to asset-market performance and technological and institutional innovations than to conventional trade in goods and services. The minor role of trade suggests that any policy that focuses narrowly on trade to deal with wage inequality and job loss is likely to be ineffective. Instead, policymakers should (a) use the tax system to improve income distribution and (b) implement adjustment policies to deal more generally with worker and community dislocation.

About the Author:
Robert Z. Lawrence is the Albert L. Williams Professor of Trade and Investment at the John F. Kennedy School of Government at Harvard University

Product Details

ISBN-13: 9780881324143
Publisher: Peterson Institute for International Economics
Publication date: 1/28/2008
Series: Policy Analyses in International Economics Ser.
Edition description: New Edition
Edition number: 1
Pages: 144
Product dimensions: 5.80 (w) x 8.80 (h) x 0.30 (d)

Preface     ix
Acknowledgments     xiii
Introduction     1
Distinctions and Qualifications     7
Plan of the Study     10
The Wage-Productivity Gap, 1981-2006     15
Measurement Adjustments     16
Role of Wage Inequality     19
Rise in Skills of Non-Blue-Collar Workers     19
Profits and Top Wage Earners     21
Conclusion     24
Wage Inequality and Trade     25
Trade Theory     25
Timing of Wage Inequality     27
Correlations Between Relative Wages and Prices     31
Controlling for Other Causes     34
Paradox of Recent Wage Behavior     37
What Do the Data Tell Us?     39
Class Inequality and Trade     47
Globalization, Stock Options, and the Super Rich     53
Top Executives     55
Why Has the Top Done So Well?     56
Other Top Earners     60
Job Dislocation: Past and Future     65
New Concerns about Job Dislocation from Global Engagement     68
Are Borders Irrelevant?     70
Conclusion     73
Appendix A     75
References     79
Index     85
Tables
Accounting for the gap between real wage and labor productivity growth, 1981-2006     10
Employment cost index compensation, by occupation, December 1980-December 2006     29
Employment cost index compensation, by industry, December 1998-December 2006     30
Hourly earnings distribution, 2005     40
Distribution of production worker average hourly wages in US manufacturing industries (six-digit NAICS industries), 2002     44
Share of US parents of majority-owned foreign affiliates in overall multinational activity     58
Percentage of taxpayers in the top 1 percent of earners, by sector, 2004     61
US parent share in US multinational value-added, 1999 and 2004     63
Decomposition of the gap between output per hour and blue-collar wages, 1981-2006     76
Figures
Share of corporate profits in US national income, 1947-2006     2
Share of top 1 percent workers in tax return wage income, 1980-2006     3
Business-sector output per hour and real hourly wages, 1981-2006     4
Goods and services trade as a share of US GDP, 1978-2006     5
Blue-collar pay and business-sector output per hour, 1981-2006     17
Contributions of inequality to the productivity-wage gap, 1981-2006     23
Share of goods imports in US GDP, 1978-2006     32
Ratio of US nonagricultural export prices to prices of manufactured goods imports from industrial and developing countries, 1990-2006     33
Ratio of prices of US manufactured goods imports from developing countries to prices of US manufactured goods imports from developed countries, 1990-2006     34
Ratio of white- to blue-collar ECI compensation, 1981-2005     35
Ratio of earnings of college graduates and advanced degree holders to earnings of high school graduates, 1975-2005     35
Ratio of union to nonunion ECI compensation, 1980-2005     36
Ratio of annual earnings of high school dropouts to high school graduates, 1975-2005     37
Share of labor compensation in US national income, 1947-2006     48
Share of labor compensation in net value-added of nonfinancial corporations, 1947-2006     49
Share of benefits in US national income, 1980-2006     52
Share of foreign earnings in US corporate profits, 1970-2006     59

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Blue-Collar Blues: Is Trade to Blame for Rising US Income Inequality? / Edition 1