speeches · March 24, 2004

Speech

William Poole · President

Trade, Wages, and Employment LeMoyne-OwenCollege Memphis,Tennessee March25,2004 My remarks today will focus on andusetechnologyininnovativeandconstruc- trade, wages, and jobs.1 Workers’ tiveways. anxietiesabouttheirjobsaremak- Beforeproceeding,Iwanttoemphasizethat ingheadlinesandaffectingdebate theviewsIexpressherearemineanddonot within and between both major political parties. necessarilyreflectofficialpositionsoftheFederal With jobs in February 2004 reported by the pay- ReserveSystem.Ithankmycolleaguesatthe roll employment survey at a level more than 2.3 FederalReserveBankofSt.Louisfortheircom- million below their level less than three years ments;CletusCoughlin,vicepresidentinthe earlier, the fact that jobs are a major issue is far ResearchDivision,wasespeciallyhelpful.How- from surprising. I am sure that many of you are ever,Iretainfullresponsibilityforerrors. following these developments because you are either involved in the labor market or actively preparing for entry into the labor market. THE DEBATE Anydiscussionofjobsinthecurrentenviron- MuchofwhatIhearandreadaboutinterna- mentmustnecessarilyaddresstheissuesofinter- tionaltradethesedaysmakesmeapprehensive. nationaltradeaswellaswages.Indeed,some Criticsoffreetradeabound.Iamconvincedthat believethattradehasalottodowithweakjob outsourcingandglobalizationyieldimportant creationintheUnitedStates.Federalandstate long-runbenefitsfortheUnitedStatesasawhole. legislatorsarediscussingproposalstocounteract Thecaseforfreetradeshouldnotbeoffered globalization. defensivelyandapologetically,butclearlyand Myplanistooutlinethenatureofthedebate, forcefully. todiscussthepowerfuleconomicforcesexpand- Unfortunately,asistrueofmanydevelop- ingtrade,andstatethecaseforthegainsfrom mentsthatincreasethenation’swell-being,the trade.I’mgoingtoconcentrateontheeffectsof gainsfromtradearenotachievedwithoutcost. tradeontheworkforce,ratherthanontheadvan- Itistruethatsomeworkerslosetheirjobsanda tagesoftradeforconsumers.I’llemphasizeaper- numberoftheseareunemployed,insomecases spectivethatis,Ibelieve,sorelylackinginthe forperiodstoolongtobelabeled“temporary.” currentdebate.Theperspectiveisthatmuchof Tradeandtechnologyinteract.Oneexample whatishappeningtodayisanunavoidableconse- isjetaircraft,whichnotonlyreplacedmanypas- quenceofnewtechnology.Ratherthancomplain- sengertrainsdomesticallybutalsodramatically ingabouttheconsequencesofnewtechnology, reducedfreighttransportationcostsinternation- ortryingtorollbackitseffects,weneedtoadapt ally.Jetfreightersnowcarryalargefractionof 1 Thisspeechissomethingofacompanionpiecetotwoearlierspeechesoninternationaleconomicissues.See“APerspectiveonU.S. InternationalCapitalFlows”(addressbeforetheTucsonChapteroftheAssociationforInvestmentManagementResearch(AIMR),Tucson, Arizona,November14,2003)and“APerspectiveonU.S.InternationalTrade”(addressbeforeLouisvilleSocietyofFinancialAnalysts, Louisville,Kentucky,November19,2003). 1 INTERNATIONALTRADEANDFINANCE high-valuegoodsininternationaltrade.Techno- theirownstates,butveryfewdo.Mostpeople logicalchangehasexpandedmarketsdomesti- donotevenrealizethattheyaresupposedtopay callyandinternationally,permittingsubstitution theequivalenttaxestotheirownstates,andwhen oflowercostproductionlocationsforhighercost informedoftherequirementtheyregardthislegal ones. provisionasunfairandunreasonable.Alegal Thetransitionalcostsstemmingfromunem- provisionlikethisoneissimplyunenforceable ploymentcreatedbyeconomicchangehavegener- whenmostcitizensregarditasunjustandbelieve, atedmuchdiscussionconcerningtheappropriate correctly,thatenforcementisveryunlikely. policyresponse.Somearguethatpublicpolicy Wouldanyoneseriouslyarguethatneighbor- shouldattempttocounteractthemarketforces ingstatestoDelawareshouldattempttoenforce drivingoutsourcingandotherformsofincreased thesalestaxbyinstallingroadblocksandinspect- internationaltrade,whileothersarguethatpub- ingeverycarforgoodspurchasedinDelaware? licpolicyshouldactinconjunctionwiththe Suchapolicywouldbeextremelycostly,and marketforces. perhapsunconstitutional.Icanguaranteethatthe Myconcernisthatfearsassociatedwitheco- governorofaneighboringstatewouldbequickly nomicprogresswillleadtomisguidedpolicies votedoutofofficeifheweretoinstructhisstate thatwillgeneratelargecostsandminimalbenefits policetostopeverycarattheDelawareborder evenforthoseintendedtobenefit.Mypreference andsearchforgoodspurchasedinDelaware.For isforpoliciesthatallowmarketstoworkbetter, theneighboringstatesofPennsylvania,Maryland, whileprovidingtransitionalassistancetothose andNewJersey,theabsenceofasalestaxin adverselyaffected. Delawareisafactoflifeandeveryonehadbetter justgetusedtoit. IfthereweremorestateslikeDelawarescat- INCENTIVES TO TRADE teredacrossthecountry,thesalestaxwouldall Thebasicincentivetotradearisesfromthe butdisappearbecauseitwouldbecomeunen- factthatitisoftenpossibletoobtaingoodsmore forceable.Competitionisapowerfulforce,and cheaplythroughtrade.Theplacetobeginthe thetendencyforpriceequalizationacrossmarkets analysisiswithanimportantandobviouslycor- issopervasivethatgovernmentscannotpass rectpropositionineconomics—thetendencyofa effectivelawsagainstit.Youmayormaynotlike givengoodtosellforthesamepriceinallmarkets. thisresult,butitisafactoflife. Itisworthspendingamomenttothinkabout Thetendencytowardpriceequalization priceequalizationtounderstandjusthowpower- appliestowagespaidtoworkersaswellasto fulaforceitis.Ifthepriceofthesamegooddif- thepricespaidforgoods.Wagesforlaborofa fersintwolocations,thenconsumershavean givenskillleveltendtowardequalityindifferent incentivetopurchasethegoodfromtheseller markets.Theeconomicforcesarethesameas withthelowerprice.Everytimeyoupassbyagas thoseapplyingtogoods.Peopletendtomoveto stationwithahighpricesothatyoucanbuyata wherewagesarehigher,andfirmstendtolocate cheaperpriceyoucontributetopriceequalization. wherewagesarelower.Aswithprices,wage Asitisoftenput,buyerstrytobuyincheapmar- equalizationisoftenincomplete.Somelocations ketsandsellerstrytosellindearmarkets. haveproductivityadvantagesoverotherlocations, IgrewupinDelaware,astatewithoutasales andsomeareashaveahighercostofliving,which tax.Citizensofneighboringstatescometo reducestheincentiveofpeopletomove.Never- Delawaretoshop,oftenbythebusload.Inprin- theless,whenwagedifferencesarelargeenough ciple,theyaresupposedtopaytheappropriate tooverwhelmsuchconsiderations,peopletend usetaxinlieuofsalestaxtotheirstategovern- tomove,ortrytomove,totakeadvantageof mentswhentheybringgoodsfromDelawareinto higherwages. 2 Trade,Wages,andEmployment TheUnitedStateshasseenvastinternal lineunderthePacificOceancapableofhandling migrations,especiallyfromruraltourbanareas, upto128voicecallsatatimecancostjust$11,000 aspeoplehavesoughthigherincomes.Similarly, amonth—one-fourthitscostjusttwoyearsago.”3 peoplehavesoughttomigrateinternationally, Thesharpdeclineincommunicationscosts bravingextremeriskstocometoNorthAmerica. isaconsequenceofadvancingtechnologyand StartingwiththefirstEnglishcolonyestablished theglutoffiberopticcableinstalledinthelate inAmerica,peoplehaveknowinglytakendifficult 1990s.Cuttingthesecablesortryingtocontrol oceanvoyagestosettleinanoftenhostileenviron- voiceanddatatransmissionoverthemisnomore ment.Theycamebecauseoftheeconomicoppor- realisticthanstategovernmentstryingtoprevent tunityandtoliveinafreenation.Ofcourse,many theircitizensfromshoppinginDelaware.This werealsobroughthereagainsttheirwill,and newtypeofinternationaltradeisafactoflife, onlyslowlyhavetheirdescendantsbeenableto andwehadbettergetusedtoit. enjoythefreedomandeconomicopportunity thatattractedsomanytocomevoluntarily. Today,manybravesimilarhazardstocross THE GAINS FROM TRADE U.S.borders,especiallyinthedesertsouthwest. Internationaltradearisesfundamentallyfrom Weshouldnotunderestimatepeople’singenuity economicforceseverybitaspowerfulastheones andsteadfastnessofpurposetocometothiscoun- thatdrivedesperatelypoorpeopletorisktheir try.WhateveryourviewsonU.S.immigration livestocometotheUnitedStates,andtheones policy,youcannotignorethestrengthoftheeffort thatleadyouandmetofindthebestpriceofgas somanyarewillingtomaketocometothiscoun- whenwefillupthecar.Theseeconomicforces tryandtoremainhere.Thatisafact,however ofseekingthebestpriceandthebestplaceto inconvenientitmayseem. liveimproveourlives. Recentcontroversyoverinternationaltrade Inourspecializedeconomy,atypicalhouse- focusesoninternationaloutsourcingofactivities holdbuysgoodsandservicesproducednotonly suchascomputerprogrammingandcallcenters. initshomestatebutalsothroughouttheUnited Manyotherjobs,suchastaxpreparationand Statesandtherestoftheworld.Byspecializing transcriptionofmedicalrecordsareaffected.2In incertainactivities,regionsaswellasindividuals whatfollows,I’lluse“callcenters”asashorthand areabletomaximizethevalueofworkeffort.By forallthesesortsofjobs. producingmostgoodsandservicesforsaleto Whatweareobservingisanapparentlynew others,wetradeouroutputforthegoodsandserv- formofinternationaltrade—tradeinservicesthat icesthatwearenotespeciallyadeptatproducing. werepreviouslynotsubjecttotrade.Writing Nearly200yearsago,theeconomistDavid standardtypesofcomputercodeandtakingtele- Ricardodemonstratedthegainsfromtrade.To phoneordersaregoodjobs,butsomeofthese explaintheprincipleofcomparativeadvantage, jobscannowbeperformedabroad.So,someof heusedtheexampleofEnglandandPortugal theseservicejobsaregoingabroadjustasdid tradingclothandportwine.Thetrademadeboth manymanufacturingjobsoverthelast25years. countriesbetteroff.IfPortugalcanproduceboth Whatmakesserviceoutsourcingpossiblenow portwineandclothwithfewerhoursoflabor isadramaticdeclineinthecostsofcommunica- inputperunitofoutputthancanEngland,itwill tions.AnarticleearlierthismonthintheWall stillpayPortugaltoproducewineandtradewith StreetJournalreportsthat“atelephoneanddata Englandforcloth,assumingthatEnglandisrela- 2 KrisMaher,“NextontheOutsourcingList,”theWallStreetJournal,March23,2004,p.B1. 3 JesseDrucker,“GlobalTalkGetsCheaper,”theWallStreetJournal,March11,2004,p.B1. 3 INTERNATIONALTRADEANDFINANCE tivelymoreefficientinproducingcloththanwine. THE COSTS OF PROTECTIONISM Thepropositiongeneralizestomanygoodsand Aconsistentfindingintheeconomicslitera- manycountries.Aslongasresourcesmoveinto tureisthattraderestrictionsimposenetcostson thoseactivitiesinwhichthecountryismost society.Despitethefactthattraderestrictions advantagedorleastdisadvantaged,thenalltrad- producebenefitsforsome,thebenefitsaremore ingpartnerscanbebetteroffbytradingsomeof thanswampedbythecostsbornebyothers. theoutputthattheyproduceatrelativelylow Considerafewexamplestoillustratehow costforsomeoftheoutputthattheyproduceat costlyprotectioncanbe.4Theseexamplesare relativelyhighcost. fromtheearly1990sbecausecarefulestimates Intheabsenceoftraderestrictions,thegains ofthecurrentcostsofprotectiononanindustry fromtradearelimitedbytransportationcosts. basisarenotavailable.GaryClydeHufbauerand Forexample,itwouldnotmakesenseforyouto KimberlyAnnElliottgeneratedestimatesofthe drivemanymilestoacheapergasstationifthose potentialnetnationallossesbyindustry,aswell extramilesusedup$5worthofgastosave$3 astheconsumerlossesandproducergains,asso- whenfillingthetank.Thus,pricedifferencesin ciatedwithexistingU.S.tradebarriers.5 differentmarketscansurviveindefinitelyiftrans- HufbauerandElliottprovideestimatesfor portationcostspreventpriceequalization. manyindividualindustries,butconsiderjusta Overtime,technologicalimprovementhas coupleofexamples.Becauseofthehigherprices dramaticallyreducedtransportationcosts,and forapparelthatconsumerswereforcedtopayas thatisaprimereasonfortheexpansionofinter- aconsequenceoftraderestrictions,theconsumer nationaltradeinrecentdecades.Wecannow lossperjobsavedintheapparelindustrywas buy,forexample,freshfruitsandvegetablesin $139,000andthenetnationallossperjobsaved thewinterbecausetheycanbeshippedbyair was$51,000.Thus,consumerswereeffectively fromthesouthernhemisphere,whichenjoys payinganaverageof$139,000foreachjobpro- tectedin1990intheapparelindustry,anindustry summerduringourwinter. inwhichtheaveragewageofaproductionworker Changesintechnologyclearlyproducebene- waslessthan$15,000. fits,buttheyalsoforceadjustment.Ifyouwork Theapparelindustrywasnottheonlyindus- inafactoryproducingtypewriters,youmaynot trybenefitingfromtraderestrictions.Inthesugar bepleasedtoseepeoplebuyingcomputers.Ifyou industry,theconsumerlossperjobsavedwas workinacallcenterintheUnitedStates,you $600,000andinthebenzenoidchemicalsindus- maynotbepleasedtoseecompaniescontracting try,theconsumerlossperjobsavedexceeded withcallcentersabroad. $1million! Freetradecontributesgreatlytoeconomic growth,butitdoescreatecostsforworkersin industriesdisplacedbyinternationalcompeti- TRADE, TECHNOLOGY, AND tion.Effortstoprotectworkersfromtheforcesof WAGES internationalcompetition,however,arecostlyto thenationsthatpursuesuchpolicies.Itisworth TheUnitedStateshasexperiencedrising spendingafewminutestodiscussjusthowcostly wageinequalitysincethelate1970s.Wagesof protectionismcanbe. collegegraduatesrelativetohighschoolgraduates 4 CletusC.Coughlin,“TheControversyOverFreeTrade:TheGapBetweenEconomistsandtheGeneralPublic,”FederalReserveBankofSt.Louis Review,January/February2002. 5 GaryClydeHufbauerandKimberlyAnnElliott,MeasuringtheCostsofProtectionintheUnitedStates,InstituteforInternational Economics,1994. 4 Trade,Wages,andEmployment haverisen,andthelesseducatedappeartobe Thelogicofhowtradecansubstitutefor sufferingdecliningrealwages.Growinginter- migrationisnotdifficulttounderstand.Suppose nationaltradehaslikelyplayedaroleinthe thecostofproducingaparticulargoodwere90 decliningrealwagepaidtotheleastskilled percentlabor,andonly10percentfrommaterials membersofU.S.society. andcapital.Then,clearly,freetradeinthegood Thelogicoftheargumentthattradehas willtendtoequalizethewagesofthelaborskill impactedwagesoflessskilledworkersiseasyto requiredtoproducethatgood.Tradeincall-center understand.IfmigrationintotheUnitedStates servicesmaymakeitalmostirrelevantwhether werecompletelyopen,workersofanygivenskill theworkerontheendofthephonelineresides levelwouldtendtoearnthesamewageswherever intheUnitedStatesorabroad.Isay“maymake” theylived,asmigrationwouldtendtoequalize becausetherearestillissuesoftraining,supervi- wages.TheUnitedStatesandotherhigh-income sion,andproximitytoface-to-facecommunication countrieshaveanabundanceofhigh-skilled thatcreatesignificantdifferencesinproductivity workersrelativetopoorernations.Ifmigration betweenworkerslocatedintheUnitedStatesand werecompletelyopen,wagesofsuchworkersin thoselocatedabroad.Theservicesmosteasily relocatedabroadwillbethosethatareroutine othercountrieswouldtendtorisetoU.S.levels. andrelativelysimple. However,high-incomecountrieshavefarfewer low-skilledworkersthandolow-incomecoun- tries.Fortheseworkers,freemigrationwould OUTSOURCING AND tendtolowerwagesintheUnitedStatestoward theworldaverageforsuchworkers. PRODUCTIVITY Migrationisnotinfactopen,whichmeans ThepaceofchangeintheITindustryhas thatthemigrationmechanismtendingtoequal- beenenormous,andmuchofitisquiterecent.In izewagesforvariousskilllevelsoperatesquite thelate1990s,telecomcompaniesinstalledahuge weakly.However,tradeingoodsalsotendstopro- amountoffiberopticcable,underbothlandand ducethesameresult.Thisfacthasbeenknown ocean.Rarely,ifever,hasthecostofshipping sincepublicationofanimportantpaper63years somethingdeclinedsorapidlyandsogreatly.In ago,in1941,byWolfgangF.StolperandPaulA. thiscase,itisinformationthatisbeingshipped. Samuelson.6Clearly,economistshavebeeninter- Telephonicanddatatransmissionhavebecome estedintheissueoftheeffectsoftradeonwages vastlycheaper,openingupnewopportunities andreturnstocapitalforaverylongtime. fortrade. Ingeneral,equalizationofwagesthrough Theoutsourcingofinformationtechnology tradeislimitedbythetransportationcoststoship services,whichentailssomeshiftingofjobsfrom thegood.Declinesintransportationcoststhrough theUnitedStatestoothercountries,suchasIndia, technologicalchangewillopenuptradeoppor- hasgeneratedmuchcontroversy.Itisnowpossi- tunitiesthatdidnotexistbefore.Theexpanding bletolocatecallcenters,whichareobviously tradewillmakenationsasawholebetteroff,but laborintensive,almostanywhereintheworld. createlossesforcertainfirmsandindividualsnow Fiberopticcablescarrymessagesanddatainboth subjecttointernationalcompetitionthatprevi- directions,whichmeansthatthistechnologyis ouslywasimpossiblebecauseoftransportation asimportantforU.S.exportsasforU.S.imports. costs.Thedramaticdeclineincommunications Giventhisfact,thereisaboutasmuchchanceof costsinrecentyearsisnowcreatingexactlythis stoppingthisnewtypeofinternationaltradeas effectforcertainserviceindustriessuchascall thereisofstoppingshoppersfromcomingto centers. Delawaretoavoidsalestax. 6 “ProtectionandRealWages,”ReviewofEconomicStudies,Vol.9,November1941,pp.58-73. 5 INTERNATIONALTRADEANDFINANCE Norshouldwewanttostopinternational JOBS AND SAFETY NETS voiceanddatatransmission.Recentresearchby Despitetheinevitability,anddesirability,of CatherineMannconcludesthattheglobalization enlargedtradeinITservices,thequestionremains ofinformationtechnologyserviceswillpropela ofhowtolimitadverseimpactsonaffected newwaveofproductivitygrowth.7Mannenvi- workers.Thelossofajoboftenimposessubstan- sionsthisprocessunfoldinginthefollowing tialcostsonworkersandtheirfamilies.These manner: costsoccurduringtheperiodofunemployment Inresponsetomarketincentives,theglobal- aswellaslaterifworkershavetoadjusttoalower izationofsoftwareandinformationtechnology levelofpay.Olderworkersareespeciallyprone servicesrequiresthatsomeworkwillbedone tosufferwagecutsastheytendtobelessflexible overseas.NotethatIsaidthatsome,notall,work inadaptingtonewproductiontechniques.They willbedoneabroad.Coincidingwiththespread maylacktheeducationalbackgroundtotransfer ofthesenewinformationtechnologiesthrough- towell-paidservice-sectorjobs. outtheUnitedStates,high-skillU.S.jobsto Tradeliberalizationisoftenthefocalpoint designinformationtechnologyimplementations foranxietyaboutjobs.Thefocusontradeoccurs forspecificuseswillincrease.Moreover,jobs despitethefactthatjoblossesresultfrommany requiringskillstousethenewtechnologywill non-tradefactors,suchaschangesintechnology, spreadthroughouttheeconomy.Mann’sreasoning shiftsinconsumerdemand,environmentalregu- isconsistentwithestimatesfromtheBureauof lations,andthegeneralstateoftheoverallecon- LaborStatisticsthatoccupationsrequiringinfor- omy.Mostofthesechangeshavelittledirect mationtechnologyskillswillincreaseatthree connectiontothegrowthofinternationaltrade timestherateofjobgrowthintheoveralleconomy. asaconsequenceoftechnologicalchangeor Lookingforward,Mannstressesthatthe reductionoftradebarrierssuchastariffs. globalizationofsoftwareandservices,enhanced Firmshaveanobligationtodowhateverthey useofinformationtechnology,productivity reasonablycantocushiontheeffectsofjoblosses. growth,andjobcreationareintertwined.Public TheFederalReserveBankofSt.Louisisno policiesthatinhibitthisprocesswillnecessarily strangertotheseissues.Asaconsequenceof haveadverseeffectsongrowthandjobprospects decliningcheckvolumeandfederallawthat intheUnitedStates. requirestheFederalReservetocoveritscostsin Inahighlycompetitivemarket,firmscannot thecheckprocessingbusiness,theSt.LouisFed affordtoforegothecostsavingsassociatedwith isclosingitscheckprocessingoperationsinits outsourcingorbuyingrequiredinputsfromthe LouisvilleandLittleRockBranches.Whatwe least-pricesource.Itistruethatbuyingtheserv- havedoneistoprovideamplenoticetoour icesfromabroadmightmeanthatthefirmwill employeeswhosejobswillbedisappearing, havefeweremployeesintheUnitedStates.How- substantialseverancepayments,andrelocation ever,jobsintheUnitedStatesremainbecause assistancetootherFederalReservefacilitiesfor thefirmsurvives.Foregoingthecostreductions employeeswhocanfindjobsatthoselocations wouldmeanthatallthefirm’sjobsintheUnited andwhoarewillingandabletomove. Stateswouldbeplacedatamuchhigherrisk. Butthereisonlysomuchthatindividual Legislationthatbarscompaniesfromgovernment firmscando.CostsincurredbyU.S.workers contractsiftheyplantocarryoutsomeorallof stemmingfromjobinsecurityarethereforea theworkabroadisfundamentallyatoddswith publicpolicyissue.Policyexpertshavelong theefficiencyandproductivitygainsthatafree beeninterestedinhowgovernmentcanmore marketwillyield. effectivelyassistdisplacedworkers. 7 CatherineMann,GlobalizationofITServicesandWhiteCollarJobs:TheNextWaveofProductivityGrowth,InstituteforInternational Economics,InternationalEconomicsPolicyBriefs,NumberPB03-11,December2003. 6 Trade,Wages,andEmployment Itisnoteworthythat,relativetoothercoun- addingwageinsuranceuponre-employmentand tries,intheUnitedStatesmanyfewerindividuals subsidiesformedicalinsurancetothecurrent areunemployedforlongperiods.Usingdata unemploymentinsuranceforfull-timeworkers fromtheOrganisationforEconomicCo-operation whohavebeendislocated,regardlessoftherea- andDevelopment(OECD)for2002,thedistribu- son,fromjobstheyhaveheldfortwoormore tionofunemploymentbydurationshowedthat years.10Thewageinsuranceprovisionwouldpay intheUnitedStates35percentwereunemployed theworkerforaperiodoftimesomepercentage forthreemonthsorlonger.ForallOECDmembers, ofthedifferencebetweentheworker’soldwage thecomparablefigureis62percent.8Meanwhile, andnewwage.Themedicalinsurancesubsidy roughly9percentwereunemployedformore wouldincreasethelikelihoodthatanunemployed thanoneyearintheUnitedStatesversus30per- workercouldaffordtobuymedicalinsurance centforallOECDcountries.Despitetheextensive whileunemployed.Ihavenopositionconcern- welfarestatepoliciespursuedinmanyEuropean ingthespecificsoftheirproposal.However,in countries,theUnitedStatesactuallydoesamuch termsofmakingmarketsworkratherthanattempt- betterjobinminimizingthetraumaoflong-term ingtoinhibitmarketsfromallocatingresources unemployment. totheirmostproductiveends,theproposalhas Abasicpublicpolicyissueishowtocom- merit.11 pensatetheunemployedwhilesimultaneously providingincentivesforthemtoseektobecome re-employed.Since1974,incertaincaseswhere JOBS, HIGHER EDUCATION, joblossescanbetiedtointernationaltrade,U.S. unemploymentinsurancehasbeensupplemented AND THE FUTURE byaprogramknownastradeadjustmentassis- Oneofthekeypointsoftheprecedingdiscus- tance.Qualifiedindividualsmayreceive52addi- sionisthataworker’sskillsarecrucialintoday’s tionalweeksofunemploymentinsuranceifthey globallabormarket.Technologicalchange,which areenrolledinanapprovedtrainingprogram.A isthedrivingforceforeconomicgrowthand similarprogramwassetupforthosewholost higherstandardsofliving,isconstantlychanging theirjobsaspartoftheNorthAmericanFree thevalueofthoseskills.Itiseasytoidentifymany TradeAgreement. casesinwhichtechnologicalchangeshavealtered Withoutquestion,manypeoplehavelegiti- employmentopportunitiesandthevalueofjob- matefearsabouttheshort-runconsequencesof specificskills.Asemploymenthasdeclinedin freetradeandglobalization.JagdishBhagwati,a manymanufacturingindustriesintheUnited professoratColumbiaUniversityandaleading defenderofglobalization,hastiedthesefearsto States,workershaveexperiencedtheseconse- thelackofinstitutionalsupportforthoseatrisk quencesfirst-hand.Theseemploymentchanges ofbecomingunemployedorunderemployed.9 highlighttheimportanceoflife-longlearning. Bhagwatiarguesthatthesafetynetforthoseat TheUnitedStatesprovideslargesubsidiesto riskismuchlessintheUnitedStatesthanin highereducation,andahighfractionofitspop- othercountries. ulationcompletescollegeanduniversitydegrees. Howmightthesafetynetbeexpanded?Apro- Collegecanteachsomejob-specificskills,butno posalbyLoriKletzerandRobertLitansuggests oneshouldbelievethatthosespecificskillswill 8 ThesedataarepublishedbytheOECDinLaborForceStatistics. 9 JagdishBhagwati,InDefenseofGlobalization,OxfordUniversityPress,2004. 10LoriG.KletzerandRobertE.Litan,APrescriptiontoRelieveWorkerAnxiety,PolicyBrief01-2,InstituteforInternationalEconomics, February2001. 11Mann(2003)notesthatamodifiedversionofthisproposalwasincludedinrecenttradepromotionauthoritylegislation. 7 INTERNATIONALTRADEANDFINANCE lastalifetime.Thefactisthatmanyjobsdonot IN A NUTSHELL lastalifetimeand,evenforthosethatdo,techno- Inanutshell,myargumentisthis.Technology logicalchangeswillalterhowthosejobsaredone. willcontinuetochangerapidly.Tradeandpro- Themostimportanteducationcollegecanoffer ductionpatternswithintheUnitedStatesandin istoprovidethefoundationthatwillallowstu- theworldeconomyarealsochangingrapidly. dentstolearnandacquirenewskillsovertime. Tradeingoodswilltendtoequalizewagesfor Collegeshouldinstillinstudentsapassionfor givenskilllevelsjustassurelyaswouldopen life-longlearning. migrationofpeoplefromlow-wagecountriesto Noskillsaremoreimportantandmoretrans- high-wagecountries. ferabletodifferentjobsthanlogicalthinkingand Today’sworkforcemustadapttothedynamic goodcommunication.Generatingsounddecisions environmentinwhichwelive.Theforcesof involvesanumberofsteps,suchasacquiring changearetoopowerfulforanygovernmentto data,assessingtheusefulnessoftheinformation, control,withoutmakingitspeoplemuchpoorer understandingtheroleofriskandthinking thantheyneedtobe.Noexampleofthisprocess throughtheimmediateandlong-termsconse- isclearerthantheoutsourcingofcall-centerjobs. quencesofspecificdecisions.Communicating Arepressivegovernmentmighttrytocutoff effectivelyentailsspeaking,listening,andwriting communicationwiththerestoftheworldby inbothformalandinformalsettings.Regardless severingfiberopticcables,butthatwillnothap- ofthesetting,thecommunicationhastobewell- peninafreesociety.Voiceanddataflowinboth organizedandsuitedtotheaudience. directionsinthesecables,andonlyatinypart Inmyownexperienceasauniversityprofes- ofthetrafficisrelatedtojoblossintheUnited sorIwasfrequentlyfrustratedbytheminimal States. attentionmanyofmystudentspaidtogoodwrit- OnlypessimistsbelievethatU.S.entrepre- ing.Quitefrankly,Iwasstruckbythedifference, neurswillbeunabletocompetesuccessfullyin onaverage,intheattentionpaidtowritingbymy worldmarketsusingnewtechnology.Imyself Americanstudentsandmyinternationalstudents. amaproductivityoptimistbecausethereisno ToomanyofmyAmericanstudentsseemednot societymoreentrepreneurial,moreopen,more tocareaboutgoodwriting,whereasmostofmy resourcefulthantheUnitedStates. internationalstudentswereeagertolearntouse theEnglishlanguageeffectively. 8

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APA

William Poole (2004, March 24). Speech. Speeches, Federal Reserve. https://whenthefedspeaks.com/doc/speech_20040325_poole

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@misc{wtfs_speech_20040325_poole,
  author = {William Poole},
  title = {Speech},
  year = {2004},
  month = {Mar},
  howpublished = {Speeches, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/speech_20040325_poole},
  note = {Retrieved via When the Fed Speaks corpus}
}