Why are you puzzled over the current U.S. trade debate?
“It is almost completely focused on job creation. But it has never been clear to me why jobs are the object of trade. Historically, all of the conceptual frameworks with respect to trade had to do with the international division of labor and creating the highest standards of living.”
|“If we claim we’re seeking to ‘increase jobs,’ what we should mean is that we seek ‘productive’ jobs.”|
Does this leave any room for job creation?
“One has to recognize that increased jobs are the consequence of increased trade. Increasing jobs more than output implies a fall in productivity and standards of living. That surely cannot be our goal.”
What’s the right way to frame the issue?
“If we claim we’re seeking to ‘increase jobs,’ what we should mean is that we seek ‘productive’ jobs.”
What do you mean?
“There is an essential arithmetical conflict between trying to get the highest standard of living and the maximum number of jobs. As Milton Friedman used to put it, if half the workforce digs a hole and the other half fills it in, you can achieve full employment, but no economic output. He was obviously saying that facetiously, but I think it makes an important point.”
What role does job creation play in trade?
“While everyone today seems to be talking about trade in terms of jobs, trade policy has always been the issue of enforcing agreements and lowering tariff barriers. Essentially all trade negotiations, going back to the Kennedy round and even earlier, have been focused on removing barriers to trade. That, as every economist will tell you, is a splendid idea."
Which nation illustrates the folly of trying to create jobs through trade?
“The Chinese. They are manipulating their currency in order to get low-quality, high-labor-content products produced — for maximum employment. They are distorting their economic structure and creating long-term economic damage. I don’t know why we should be attracted to that general principle.”
|"In the United States, the productivity of the younger part of our workforce is declining relative to that of the retiring baby boomers."|
Turning back to the United States, what demographic shift will have major economic implications?
“In the United States, we are in the process of seeing the baby boomers — the most productive, highly skilled, educated part of our labor force — retire. They are being replaced by groups of young workers who have regrettably scored rather poorly in international educational match-ups over the last two decades.”
What else points to the inability of young workers to compete?
“Most disturbing is that the average income of U.S. households headed by 25-year-olds and younger has been declining relative to the average income of the baby boomer population. This is a reasonably good indication that the productivity of the younger part of our workforce is declining relative to the level of productivity achieved by the retiring baby boomers. This raises some major concerns about the productive skills of our future U.S. labor force.”
Can the U.S. government counter this trend?
“Yes, there are options to combat that decline, but contrary to what many people believe, we do very poorly in opening up our borders to skilled immigrants. Our H1-B visa restrictions are a disgrace. Most high-income people in our country do not realize that their incomes are being subsidized by their protection from competition from highly skilled people who are prevented from immigrating to the United States. But we need such skills in order to staff our productive economy, so that the standard of living for Americans as a whole can grow.”
What needs to change with respect to U.S. immigration?
“My view is that we should give a green card to every immigrant who gets an advanced degree in the United States. The proportion of those people who will be terrorists is miniscule. That would have a major positive economic impact.”
|"Most high-income Americans do not realize that their incomes are being subsidized by highly skilled people being prevented from immigrating to the United States."|
How could immigration reform reduce income inequality?
“Most of the debate on income inequality correctly focuses on raising the level of low-income individuals. However, it also works by lowering top-level incomes via more competitive immigration. There is much academic research demonstrating that it is the relative position of people in society that fosters views of ‘fairness,’ not one’s absolute status.”
How else can the United States make itself more competitive?
“History tells us that it is those societies that have the most advanced cutting-edge technologies that have the highest standards of living. That’s always been the case. If the United States is now slipping in this regard, it is basically because of our increasingly dysfunctional primary education system.”