… is from pages 475-476 of the 2015 5th edition of Thomas Sowell’s Basic Economics [original emphasis]:
As for jobs, before the NAFTA free-trade agreement among the United States, Canada, and Mexico went into effect, there were dire predictions of “a giant sucking sound” as jobs would be sucked out of the United States to Mexico because of Mexico’s lower wage rates. In reality, the number of American jobs increased after the agreement, and the unemployment rate in the United States fell over the next seven years from more than seven percent down to four percent, the lowest level seen in decades. In Canada, the unemployment rate fell from 11 percent to 7 percent over the same seven years.
Why was what happened so radically different from what was predicted? Let’s go back to square one. What happens when a given country, in isolation, becomes more prosperous? It tends to buy more because it has more to buy with. And what happens when it buys more? There are more jobs created for workers producing the additional goods and services.
Make that two countries and the principle remains the same. Indeed, make it any number of countries and the principle remains the same.
DBx: One minor clarification: The effect of greater prosperity isn’t so much on the number of jobs – that is largely unaffected by trade – but, instead, it’s on the quality of the jobs. The freer is trade, not only does the number of jobs not fall, the real wages workers rise over time.
