EconoMatters, Rethinking America

Minimum Wage Clauses in Trade Agreements: Barking Up the Wrong Tree

It can feel very rewarding emotionally to blame Mexicans (and other foreigners) for one’s economic plight. It is far less satisfying to yell at robots.

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Takeaways


  • Many people are convinced that global trade and the related outsourcing of manufacturing jobs are at the heart of the decline in US manufacturing jobs.
  • US manufacturing jobs are predominantly lost to new technology and automation, not outsourcing.
  • It can feel very rewarding emotionally to blame Mexicans (and other foreigners) for one’s economic plight. It is far less satisfying to yell at robots.
  • The US-Mexico deal is structured to avoid the most important debate of our lifetimes: How do we manage technological progress, while maintaining social stability?
  • How do we reorganize our economies so that the financial benefits of new technologies, which displace millions of workers, do not just accrue to a tiny few, but to society at large?

Long before the Trump administration arrived on the global stage, many people were convinced that global trade and the related outsourcing of manufacturing jobs are at the heart of the decline in U.S. manufacturing jobs.

Accordingly, there is now a great deal of happiness with Donald Trump’s new trade deal with Mexico that includes minimum wage provisions – something that Democratic Presidents and U.S. labor unions have long dreamt about.

If only that deeply held conviction that differing wage levels between rich and poor countries are the root of the problem matched with human reality as well as with industrial reality.

If that were so, we might enter a happy new reality were rich countries protect their workers by stipulating high hourly wages for the trade agreements they conclude. And, it is hoped, the rise of populism in Western countries, often due to the vanishing of jobs, could be stopped.

It ain’t so

But, for the most part, it ain’t so. U.S. manufacturing jobs are predominantly lost to new technology and automation, not outsourcing (85% vs. 15%). Admittedly, it can feel very rewarding emotionally to blame Mexicans (and other foreigners) for one’s economic plight. It is far less satisfying to yell at robots.

The questions to be asked and the solutions to be found with regard to the future of manufacturing jobs are infinitely more complex than beating up on Mexico or so-called “free” trade (which is pretty much managed trade anyway and anywhere).

Solutions exist

Solutions do exist, but they are unpalatable to Republicans. As a starting point, they would require a change in the corporate structure in the United States, such as putting labor representatives on corporate boards.

That would allow firms to make smart decisions involving the long-term interests of their most important assets, their own workforce. As it stands, the almightiness of the Chairman, CEO and President (often a veritable trinity) and the over-emphasis on shareholder interests stands in the way.

This is all the more astounding as a company typically gets into trouble because its management did not see dangers or problems in due course. After remedial action becomes inevitable, the top managers and the board get to have another go at the tiller by seeking to undo their own management failures.

Will U.S. unions fall for Trump’s trickery?

Lower wages in Mexico (or in other developed countries) are far from the key problem for American workers. Inserting language in the trumped-up, “new” NAFTA with Mexico that requires a $16 minimum wage there for some of the products to be exported to the United States surely sounds good.

But it is simply unenforceable. What besides the $16/hour will be the metrics? How will workers’ input be accounted for in a highly fluid business process? Who are the workers? Are middle management also “workers”? There are so many loopholes in this requirement that Mexico happily made this “concession.”

It goes without saying that the minimum-wage requirement of the Trump Mexico deal is especially ironic given Republicans’ resistance to raise the federal minimum wage in the United States from a ridiculous $7.25. That wage has not been changed since 2009!

Using the clear and present danger of populism to resort to minimum-wage clauses in trade agreements does not make their argument any more coherent. At best, it addresses only a minor dimension of the problem, while pretending the whole issue will go away as a consequence.

An escapist act

Ultimately, the U.S.-Mexico deal is structured to avoid the most important debate of our lifetimes: How do we manage technological progress, while maintaining social stability?

And how do we reorganize our economies so that the financial benefits of these new technologies, which displace millions of workers, do not just accrue to a tiny few, but to society at large?

Finally, how do we meaningfully fill the void of disappearing jobs in people’s lives so that our societies won’t suffer from increasing drug epidemics and declining life expectancy?

This is a debate worth having. The rest is just smoke and mirrors and a highly transparent act of escapism.

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About Uwe Bott

Uwe Bott is the Chief Economist of The Globalist Research Center. [New York/United States]

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