NYT oped: When it comes to trade-induced job loss, “don’t worry, be happy!”

March 29th, 2018 at 9:35 am

I’ve long hoped, probably naïvely, that one of the benefits of team Trump’s promotion of generally ineffective (or worse) solutions to the downsides of trade could engender a debate about better ideas. Of course, the debate will also generate some really bad arguments, like this one from economist Donald Boudreaux in this AM’s NYT.

Boudreaux argues that trade (and, implicitly, anything else) can’t be a problem for jobs because the US economy creates and destroys tons of jobs all the time. The nub of his case comes down to:

“…estimates of jobs destroyed by trade sound big, but they’re actually tiny. Relative to overall routine job destruction and creation — “job churn” — the number of American jobs destroyed by trade is minuscule.

In January alone, the number of American workers who were laid off or dismissed from their jobs was 1.8 million. The number of workers who quit their jobs that month was 3.3 million. Adding in workers who left their jobs for other reasons, such as retirement and disability, the number of job separations in January was 5.4 million. But there were 5.6 million hires in January, too. Those numbers are typical of most months.

Awareness of job churn should calm Americans’ fears about imports [good luck with that–JB]…Compared with the number of total annual job losses…job losses from trade shrink into insignificance.”

He then cites some estimates of trade-induced job losses:

“Ms. Wallach’s estimate that Nafta destroyed one million jobs in its first 20 years means that it took freer trade with Mexico two decades to destroy as many American jobs as are now destroyed every 18 days on average. Mr. Autor, Mr. Dorn and Mr. Hanson’s calculation that 2.4 million American jobs were ended by trade with China from 1999 through 2011 implies that the 13-year “China shock,” as the paper called it, eliminated as many jobs as are eliminated, on average, every 41 days.”

By this measure, almost any amount of job loss attributed to any cause will be insignificant. Boudreaux has taken Panglossian economics (“don’t worry—be happy!”) to a new high. His trick, if you didn’t notice, is a) conflating gross with net flows, and b) not giving a crap about the pain of job loss, dislocation, and the damage done to whole communities that found themselves on the wrong side of these global dynamics.

I asked David Autor—he’s one of the economists whose work Boudreaux critically cites—what he thought about this argument that job churn somehow negates job loss. His response follows:

“It’s unfortunate that a Ph.D. economist would not recognize the crucial difference between gross and net job losses. By Boudreaux’s logic, since “in a normal year, then, the number of workers laid off or dismissed averages 21 million,” the U.S. Great Recession was a negligible event: the U.S. lost fewer than 4 million jobs in the first year (a mere one-quarter’s worth of job losses) and no more than another 2 million in the second year (only a month’s worth). It’s remarkable that we even noticed!

Yes, when the U.S. loses and gains 21 million jobs in a year, this is the normal ebb and flow of the labor market. Large gross job flows need not imply any net loss of employment. But when sharp changes in world trading conditions cause the U.S. manufacturing sector to close up shop on 14 percent of its base employment level (2.4 million of 17.3 million manufacturing jobs) in the space of a few years, and many of these displaced workers leave the labor force, that’s a huge rise in concentrated net job loss that is not part of the normal ebb and flow. (By the way, 2.4 million is the conservatively estimated trade-induced fall. U.S. manufacturing jobs plummeted from 17.3 million in 1999 to 13.8 million in 2007, a net reduction of 3.5 million, followed by another 1.9 million net fall between 2007 and 2010).”

So, if you happen to read Boudreaux’s oped and it seemed inconceivable to you that millions of net job losses magically “shrink into insignificance,” be assured that you were right and he was very wrong.

As I’ve tried to stress in much recent work, this moment does, at least it should, create a moment to talk about what we should do for those hurt by trade.

I’ve argued:

–Much better work supports for job losers, including direct job creation in places with persistently weak labor demand.

–Improve the quality of existing jobs through much better labor standards (see Heidi Shierholz’s recent work on this). Though there are definitely pockets of weak labor demand, even today, broadly speaking, our labor market problem is less job quantity than quality.

–Help our smaller manufacturers by expanding the Manufacturing Extension Partnership (it’s a small but venerable part of the solution—I’ve got a piece coming out soon on this with the details).

–Push back on currency intervention by trading partners with “countervailing currency purchases” (see Gagnon/Bergsten on this). Trump’s new South Korean trade deal relegated currency rules to a toothless side agreement.

–See Lori Wallach and my agenda for more inclusive trade deals, including taking ISDS out of these agreements, putting a currency chapter in the deal with enforceable disciplines, and ensuring a much more balanced set of interests around the table when these deals are cast.

[Whoops: an earlier version got Boudreaux’s fist name wrong.]

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4 comments in reply to "NYT oped: When it comes to trade-induced job loss, “don’t worry, be happy!”"

  1. John Bender says:

    Sorry, but Jared, your spinning tales. There is no such thing as “trade induced job loss”.This is mumbling trying to create a story. No one knows why the jobs were gone and when in total. What created the offshoring boom and what the number of manufacturing jobs would or could be here today without technological improvements.

    The origin of US manufacturing offshoring goes back to 1979 right when the global credit bubble was popping up and companies wanted to increase sales of consumer durables. Wallach’s estimates are pure noise. He has no clue. He is guessing. Remember, without the Boomer surge in the 80’s and 90’s, manufacturing jobs would have fallen in that period. Why didn’t it? Because of auto sales. I even worked for GM in 2000 when they had over hired based on expectations of permanent rise in sales. Once it became clear by January of 2001 sales weren’t going to increase anymore than were they ahd been in 2000, GM was forced to lay a x amount of workers and indeed during the 00’s, there was no reason to expand the pace of hiring more workers because the Boomer wave was over. Thus, the mirage was gone. This is the total auto industry up and down the supply chain. Just think if sales expanded to 22 million by 2007. To 30 million today. We would still have 17 million jobs. NAFTA which you whine about, helped US auto workers keep their jobs. The fact is, from population density, the party was over. Even today, Auto’s have been the main manufacturing job growth story, moving it back up after the last recession. It is also now, overselling via debt. What does that tell you………..

    You think this is due to trade? Hardly, it is to due with capital flows. Pure and simple. As Yoda says, this is where you fail.


    • Smith says:

      The U.S. auto companies who open auto plants in Mexico don’t keep this a secret. Neither did Carrier when they eliminated many jobs even though Trump tried to stop them (some were saved). Again, there is no mystery because it’s not as if some new product from Mexico or China was developed the Americans wanted. Trade with Japan and Germany, where we run big deficits because of auto sales, are not caused by moving American production. Americans prefer their cars. But how would that mean the trade deficit doesn’t cause job loss? There is no demographic explanation, because the American population is growing, so boomers increase the number of older people, but their replacements are already here. To further show how demographics explains nothing, surplus countries like Japan and Germany are actually shrinking, their boomers are not being replaced.
      The story of inept auto industry management is scary, but doesn’t explain away the problem with trade. Likewise the capital flows theory is usually given to say things like currency manipulation or interest rates are causing imbalance.


  2. Kevin Rica says:

    Jared,

    His name is not David, it’s Don Boudreaux.

    We’ve seen him before, getting things wrong and misinterpreting (or misquoting) you.

    http://cafehayek.com/2014/08/yet-more-deficient-trade-analysis.html

    He’s just an advocate, like a lawyer, defending his side: the Giovanni Peri of the right wing. It doesn’t matter if it makes no sense, he must give his client a zealous defense.


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