That's the question that has been raging across the Internet following a piece in the NYT by Paul Theroux. Theroux decried the poverty in the South in the United States and bemoaned the fact that it was partly attributable to the outsourcing of jobs to the developing world. This prompted commentary by Annie Lowrey and Branko Milanovic and others, asking whether the gains for the poor in the developing world were worth whatever losses might have been incurred by the working class and poor in the United States.

That might be an interesting philosophical question, but it has nothing to do with the reality at hand. It assumes, without any obvious justification, that job loss and wage stagnation was a necessary price for the improvement of living standards in the developing world. Clearly, there has been an association between the two, as the manufacturing jobs lost in rich countries meant hundreds of millions of relatively good paying jobs for people in poor countries, but that doesn't mean this was the only path to growth for the developing countries. There are fundamental questions of both the size and composition of trade flows that this assumption ignores.

On the size front, there is no obvious reason that developing country growth had to be associated with the massive trade surpluses they ran in the last decade. In the 1990s, many developing countries had extremely rapid growth accompanied by large trade deficits. For example, from 1990 to 1997 GDP annual growth averaged 7.1 percent in Indonesia, its trade deficit averaged 2.1 percent of GDP. In Malaysia growth averaged 9.2 percent, while its trade deficit averaged 5.6 percent of GDP. In Thailand growth averaged 7.4 percent, while the trade deficit averaged 6.4 percent of GDP.

October 16, 2015

October 14, 2015

We all have heard the stories about how the robots are going to take our jobs. The line is that innovations in computer technology will make robots ever more sophisticated, allowing them displace a rapidly growing number of workers. This could leave large numbers of workers with nothing to do, implying a massive amount of long-term unemployment.

There are two basic problems with this story. The first is a logical problem. The story of worker displacement by technology is not new, it goes back hundreds of years and it is ordinarily considered to be a good thing. This is what we call productivity growth. It means that workers can produce more goods and services in the same amount of time. This is the basis of rising wages and living standards.

If we see rapid productivity growth, as robots allow for the same output with fewer workers, this should allow the remaining workers to be paid more for each hour of work. This will allow them to spend more money, creating more demand in other sectors, which will allow displaced workers to be re-employed elsewhere.

Of course we have not seen workers getting the benefits of productivity growth in higher pay in recent years. This is due to policies and institutional changes that undermine workers' bargaining power. For example, trade policy has deliberately put manufacturing workers in competition with low paid workers in the developing world. The Federal Reserve Board routinely raises interest rates to slow job growth when it fears that workers are getting too much bargaining power and could possibly get inflationary wage increases. And, lower unionization rates mean that workers are less effective in demanding higher pay from employers.

For these reasons, most workers have not gotten their share of the gains from productivity growth, but there is another problem with the robots displacing workers story. Rather than robots leading to a massive surge in productivity, in recent years productivity growth has been unusually slow. According to the Bureau of Labor Statistics, annual productivity growth has averaged less than 0.6 percent since 2010. This compares to an average rate of 3.0 percent in the Internet boom years from 1995–2005 or 2.8 percent in the long post-World War II boom from 1947–1973. Even in the years of the productivity slowdown, from 1973–1995, had a 1.4 percent annual rate of growth, more than twice the recent pace. In short, there have not been many gains to share.

Mark WeisbrotThe Cipher Brief, October 14, 2015

Dean Baker
Fortune, October 14, 2015

Mark WeisbrotPhiladelphia Inquirer, October 13, 2015

In November 2014, over one hundred women were elected to the United States Congress for the first time in history. While this may be a historically significant event, women are still far less likely than men to ever work in Congress.

In many ways, what is happening in Congress illustrates what is happening in the economy more generally. While the gender employment gap has been shrinking for decades, significant disparities remain. The most recent data from the Bureau of Labor Statistics indicate that the employment rate of prime-age men is about 14 percentage points higher than the employment rate of prime-age women. (“Prime-age” refers to the ages 25 to 54. These are the years in which people are the most likely to be employed.)

Dean Baker
Truthout, October 12, 2015

Dean Baker
Al Jazeera America, October 12, 2015