There is a lot of hand wringing right now about a recent report from the U.S. Census Bureau. It says that median household income is 8% below what it was before the recent economic recession, not what you want to see in a healthy economy. As a result, much internet bandwidth is being taken up by commentary about how to rectify the dilemma of low wages.
One economist has claimed the road to higher paychecks lies with exporting. Matthew J. Slaughter, associate dean at Dartmouth’s Tuck School of Business, wrote in the Wall Street Journal that pro-trade policies could create 10 million new high-paying trade-connected jobs in the U.S. over the next decade. His reasoning: Slaughter claims workers at companies that export tend to earn more than those at companies having only domestic customers. The differential is 15 to 20% more at exporters, 25 to 30% more at multinational companies.
If this is true, job seekers interested in getting ahead should be advised to filter out the nonexporters before shotgunning resumes off to Monster.com. Alas, the situation isn’t quite as straightforward as Slaughter seems to imply.
It can be helpful to understand the motivations of those who urge U.S. companies to export. The remarks in the WSJ about trade, for example, didn’t come out of thin air. They seem to have been prompted by a report Slaughter authored for HSBC Group, which calls itself the world’s leading bank for international trade. Clearly, anything that encourages more international trade is likely to boost the fortunes of HSBC.
It is also illuminating to take a closer look at the economic studies used as ammunition for the premise that exporters pay their workers more. The most recent is a 2010 Dept. of Commerce analysis by economist David Riker. Riker is a lot more circumspect about the impact of exporting than some of the trade promoters who cite his study.
He says higher earnings among workers employed by exporters reflect industry factors that make workers more productive, apart from whether or not their employers export. In other words, industries that tend to be super productive, for whatever reason, also tend to be successful exporters. For example, says Riker, if a U.S. industry produces an exceptionally high-quality, relatively unique set of goods, there’s a good chance its workers are paid well; export intensity might not have much to do with their earnings.
It is also noteworthy that to quantify how much the practice of exporting added to the take-home pay of employees, Riker had to construct a hypothetical model. In this model, he first set each industry’s export share equal to zero and then used estimated statistical parameters to come up with what workers would earn without any exporting. He then calculated how much more workers actually earned relative to the hypothetical zero- export levels. The percentage difference in these two measures of earnings is what he called an export earnings premium.
So whether or not you believe exporting begets high wages hinges to a large degree on whether you trust Riker’s hypothetical model with all its assumptions about how industries would behave if they had zero exports. There’s irony here: A hypothetical economic model for worker wages is being used to solve the economic malaise arising from the shortcomings of another hypothetical economic model — for subprime mortgages — which caused the economic collapse of 2008.
Finally, consider the U.S. industries with the highest export shares in 2007, the ones Riker used for modeling. They center on big-tech areas such as computers, electrical equipment, machinery, medical and transportation equipment. With these industries in mind, now answer the question: Which likely came first, higher worker wages or prowess in exporting? I don’t think most job seekers would need to consult an economic model to answer that question.
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