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US: Offshoring and Cheap Imports May Hurt Workers, OECD Says

by Marcus WalkerThe Wall Street Journal
June 19th, 2007

Offshoring and inexpensive imports may be hurting low-skilled workers in the U.S. and Europe to the extent that free trade and open markets could become increasingly difficult for politicians to sell to their constituents, according to one of the world's leading economics institutes.

The Organization for Economic Cooperation and Development, a Paris-based institute backed by the governments of 30 leading industrialized countries, is a staunch believer in free trade, which most economists believe makes all countries richer overall, including those with high wages.

But in its annual labor study, published Tuesday, the OECD acknowledges growing popular unease about globalization -- the growing integration of the world economy through trade and cross-border investment -- and frets about a popular backlash if governments fail to ensure that lesser-skilled workers share the benefits.

"Millions are benefiting from globalization, but at the same time there's a feeling something's wrong with the process," said OECD Secretary General Jose Angel Gurrķa. That is creating political resistance to further moves to free up international trade and investment, he said -- particularly in the U.S. and France.

A growing number of economists are expressing concern about the number of losers from globalization. Despite strong economic growth, these economists note, many workers in developed countries are struggling to find well-paid work amid a combination of cheap imports, the relocation of factories and offices to low-wage countries, and changing technology.

"The conventional wisdom was that all boats would be lifted by the rising tide. That was overly optimistic," says David Audretsch, director of the Max Planck Institute for Economics in Germany. Now, economists are recognizing that today's processes of globalization are posing new problems, he says -- but they are only starting to overhaul their theories in response.

So far, most economists still think rising global competition is a fact of life to which established economies should adapt, rather than try to block. The OECD praises countries such as Denmark that have combined flexible labor markets with effective government help for workers who lose their jobs.

Still, the OECD argues that globalization is more benign than its public image. Widespread popular fears of losing jobs to low-wage competitors in emerging economies such as China are exaggerated, it says. It estimates that the scale of offshoring -- the shift of business functions overseas -- is modest so far in service industries, although it's more widespread in manufacturing. It points out that many developed countries have cut unemployment in recent years. The problem, said Mr. Gurrķa, is partly about perceptions: "Without job losses, people are fearing job losses."

Yet the think tank's lengthy report suggests there are good grounds for at least some popular fears. After much number-crunching, the Employment Outlook concludes that "the expansion of trade is a potentially important source of vulnerability for workers."

Globalization has probably contributed to slow wage growth in the U.S. and Europe in recent years, the report finds, and is also partly to blame for rising inequality. Since the mid-1990s, the incomes of the highest-paid have grown at a faster rate than those of the lowest paid in 19 out of 21 countries surveyed, OECD figures show.

But trade isn't the main culprit, the OECD claims: The spread of computer technology -- even harder to reverse than Chinese imports -- is the main thing that is creating a widening gap between the incomes of low-skilled and high-skilled workers, it argues.

For evidence, the OECD points out that inequality is also rising in developing countries such as China, where trade ought to favor low-skilled workers, according to standard economic theory. Other economists think such arguments show the limits of standard economic theory: Technology and the growth of trade and offshoring are so intertwined that the distinction may be artificial.



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