International Trade and the Stagnation of Wages of the
Current economic conditions for the wage earner in the United States have a familiar historic ring. While the economy in general seems to be expanding, fewer and fewer high paying jobs are available for both the skilled and unskilled worker. These are the same conditions that seem to arise where labor, capital, and free trade intertwine. Explanations for our own domestic ills seems to point towards foreign competition, ever increasing efficiency in industry, and the ebb and flow of goods, capital, and labor around the world. However, it is important to recognize that the problems of the wage earner in the United States are not new. As Adam Smith, in The Wealth of Nations argued that free trade would be mutually beneficial to all involved, David Ricardo intimated that some groups of workers and businessmen would suffer, as efficiency increased geoeconomically speaking, for some and not others (Lea, 1994, pp 11-12).
Wages for the American worker more than doubled between the end of WW II and 1973. From that time to the present, wages have only risen about 6 percent. Only highly educated individuals seem to have a chance of being compensated for their efforts, and the real earnings of blue collar workers continue to erode (Krugman & Lawrence, 1994, p. 44). Explanations for these enduring conditions run the gamut from foreign competition to lack of free trade.
In order to understand the parameters of economic reasoning that attempts to explain the slowed growth of wages in the United States, certain facts must be reviewed.
First is the value added factor, as it applies to domestic manufacturing. This measurement is arrived at by deducting total sales from the cost of raw materials and other inputs that a company buys from other firms. In 1950, the value added factor in the manufacturing sector accounted for 29.6 percent of GDP and 34.2 percent of employment. In 1970, t...