The Dignity of Labor and Free Trade

The world is in turbulence as those left behind by free trade express their anger. Britain left behind their most important trade relationship, while America is considering tearing up all their agreements. The world economy will be the worse for it. As economists ponder how the rubes can choose an economically worse off position, they fail to realize that measuring benefits in dollars is not always the goal. While giving the dignity of work to the impoverished people of the developing world, some in the developed countries were losing their jobs and their dignity. As democracy reneged on their social contract, the displaced workers returned the favor. The clarion call of the displaced workers of the developed world is not for the restoration of their economic might, but the restoration of their dignity. As every political scientist knows, the perception matters more than the reality. Whether the perception turns into reality will determine the future of work.

Lifting Spirits. It is unquestioned that free trade is a benefit to the global economy. Around a billion people were lifted out of poverty in the last few decades, particularly in China. The increasing growth of the emerging economies helped the United Nations achieve its Millennial goals faster than anticipated. While there are many different drivers of global growth, expanding world trade contributed to the reduction of poverty.

Moving people off farms and into cities has made the lives better by a few measures in China. They have enjoyed better health, access to infrastructure including clean water and electricity, and higher wages. It’s not only China: Mexico has also seen similar outcomes. While not as dramatic as the change in China, Mexico has seen material changes since its inception into the North American Free Trade Agreement. Similar results also occurred in Eastern Europe as countries there entered the European Union. Free trade and its follow-on growth have improved lives all around the world.

Exporting Pride. There is not any deficiency in continuing efforts to expand free trade. Canada recently signed a free trade agreement with the European Union. The Trans-Pacific Partnership is a means to expand trade further and counterbalance the growing might of China in the region. As before with NAFTA and the EU, there were countries with highly different levels of income levels that are ripe for labor arbitrage.

In the developed world, particularly in America, people who use to have good jobs must now take a step backward. While technology may be the greater driver of the lost jobs, the perception is that free trade is the cause, notwithstanding the reduction in the cost of consumer goods that it has brought. Either way, it is a material blow to their dignity and those left behind are looking for actions that will make them feel great again.

A fallacy of decomposition. While the whole is better off, it does not mean the losers are happy. The numbers are harsh for those who have lost their jobs in manufacturing: production has increased while employment has decreased. This outcome does not give anyone hope of the jobs returning anytime soon. Transitioning from a middle-income job in manufacturing or extraction industries to low-income jobs in services does not lend itself to high levels of dignity.

This loss of dignity comes at a time in their lifecycle where the ability to adapt is hard. The aging workforce in the Industrial Rust Belt has little time to transition to new employment as they near retirement. Even with sufficient time, their prior skills are not readily transferable to an economy increasingly based on knowledge rather than physical ability.

Even if the transition is smooth, the cost may be prohibitive. The price of higher education has grown significantly higher than wages over the last few decades. Without adequate job retraining programs, the displaced must rely on their capital, which may not be sufficient. Alternately, they can enter a student loan program that may become an albatross if they are unable to find work after they complete their studies. Faced with a future that uses little of their prior skills and a high cost of transition, it should not be surprising that workforce participation rate is falling.

Monetary Illusion. The impact of restrictive trade policies is evident. Higher prices will arrive as trade is restricted, which may result in restoring jobs with higher wages for some. While there the wages gains may make them seem better off, the higher prices that will have to pay for goods may result in a reduction in their consumption. The perception of higher wages may be an improvement, but the reality will be they will be able to buy less. At this point, psychology leaves economics behind. People may not mind being worse off if the feel that they are a significant contributor to society. The higher price comes with knowing that your fellow Americans are receiving the benefits of a job and not someone in a faraway country. Sacrificing for the home team is viewed as a noble action that restores your dignity. Before you were just worse off, now you might be worse off, but you’re doing it for your fellow Americans.

Relationship issues. The reality is that the pie did grow; however, some pieces of the pie became smaller, particularly in the tradable goods sector in the developed world. They were told to make America great and discovered that the promise did not include them. They were told to accept lower pay for their jobs, or they would go abroad or to another state. As in any relationship, if the devotion and sacrifice are only on one side, the future of the relationship is questionable.

There is no clearer indication that the blue-collar labor in the US wanted to redefine the relationship over the last decade. Every election since 2008 sought to deliver change in some manner against the status quo. From President Obama to the Tea Party, to President Trump, the people have indicated they want to change, no matter its form. Critically, they wanted their jobs and the dignity that comes with it.

Strategy Risk. It’s hard to risk attaining a new job with an uncertain future when you may just be older, poorer, and burdened with untenable debt payments for the effort. As in all times when uncertainty increases, people react by narrowing their vision and waiting for the fog to clear. The trouble for these workers is that the fog may never clear. As free trade was not the principal driver of their plight, trade barriers and destination taxation may only deliver higher prices while the jobs stay away.

Through no fault of their own, blue-collar labor in manufacturing and extraction industries are burdened by the relentless march forward of technology and skills misaligned for the current environment. While a free market can deliver munificent returns on capital, it is not necessarily aligned with returns to labor. A strategy that focuses on placing barriers to trade and efficiency may impoverish them further while removing the safety nets of health care and education will impede them from transitioning to new employment. In the absence of a government led work program not seen in generations, their dignity may be restored the only way they can with a protest vote that may be greater than the last.