Jobs and Trade

Martha C White has a nice longish piece in Slate looking at the murky question of what actually goes into a bilateral free trade agreement and who does it help. I wanted to comment on one aspect of this, which is the question of trade and jobs:

The jobs question is one that has long vexed trade policy analysts. NAFTA supporters point to the economic growth and low unemployment the United States saw through most of the ’90s; detractors point to the drop in manufacturing jobs from the time of the agreement’s implementation to today. Both arguments weaken when taken in context. Yes, America’s economy expanded in the 1990s, but recent re-evaluations of the numbers indicate that the growth might have been overstated, weakening the argument that NAFTA was as much of a game-changer as its champions claim. Conversely, our manufacturing sector has been shedding jobs since the mid-’70s, when the number of Americans working in that sector peaked at around 18 million; laying blame at the feet of an agreement that came along two decades after the peak points the finger at the wrong culprit.

One thing it’s worth observing here is that over the long-term the impact on jobs of any kind of international economic agreement is going to be zero. Finland has fewer jobs than Canada which has fewer jobs than Mexico which has fewer jobs than China. Which is to say that over the long-term, the vast majority of able-bodied adults in a country who want jobs are going to find jobs. Right now the labor market is the United States is the worst it’s been in decades, but even so most people are employed. So the big long-term determinant of how many jobs you have is how many people you have. Clearly, though, Finland is richer than Canada which is richer than Mexico which is richer than China. And this is the issue here. If Barack Obama proposed a magic “full employment by reducing average living standards to Mexican levels” law, I would not applaud him. Cyclical unemployment is bad, but massing reductions in per capita GDP are worse.

So the question we’re really asking with trade policy is “does it help us increase our growth rate?”