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Quotation of the Day…

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… is from page 150 of the 2015 Fourth Edition of Dartmouth economist Douglas Irwin’s superb volume, Free Trade Under Fire [2]:

The equity rationale – that fairness requires giving workers displaced by imports special treatment – is also questionable. Workers may lose their jobs for any number of reasons: increasing domestic competition, fluctuations in the weather, substitution of capital for labor, changes in technology, shifts in consumer tastes, and so on. Even if it were possible to single out workers who have been dislocated for trade-related reasons, there is no compelling reason for treating than those who have lost their jobs for other reasons. In fact, it seems unfair to provide a more comfortable cushion for the workers displaced because of imports and not for those laid off because of, say, a painful recession brought on by the collapse of a bubble in housing prices. What is the reason for providing more generous compensation to the apparel worker in Georgia who loses a job to imports than to the typewriter assembler at SmithCorona displaced because of computers or the Kellogg’s worker laid off because General Mills begins producing tastier cereals?

DBx: Indeed so. Economically, no essential differences distinguish commerce that crosses political borders from commerce that doesn’t. And so it makes no economic or ethical sense to single out for special treatment workers who lose jobs (as is said) “to imports” – really, to economic competition or, perhaps even more accurately, to the voluntary choices of other income earners, many of whom are fellow citizens of these workers.

Also keep in mind this fact: if workers who lose jobs “to imports” are given special favorable treatment, willingness to work in industries subject to import competition will increase relative to willingness to work in industries that aren’t subject to import competition. A result will be a combination of labor-market adjustments that tend to offset whatever benefits workers in trade-related industries enjoy from their special favorable treatment.

Relative to worker pay in industries that are not especially subject to competition from imports, worker pay in trade-related industries will fall. Employers in trade-related industries will, in effect, be subsidized by taxpayers who pay for the special treatment. In addition, the increased supply of workers in industries in which employees receive this special treatment will cause the number of workers in trade-related industries to be higher than otherwise, thus resulting in greater-than-otherwise job losses in these industries if and when import competition intensifies.