International Trade & Stagnation of Wages

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 bluecollar 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.

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ates over the last twenty plus years. In 1970 United States residents spent 46 percent of their outlays on goods that were manufactured, mined, or grown. Some 54 percent of their income was spent on services and construction. By 1991, these percentages were respectively, 40.7 and 59.3 percent, as people began to buy more health care, entertainment, fast food, legal services, and so on (Krugman & Lawrence, 1994, p. 47). What seems to be emerging, as an explanation for the stagnation of American wages, is a combination of factors. The United States requires more highly skilled workers to produce fewer products. These products require the acquisition of raw products, or low value added products that foreign markets supply. The result appears to be a lessening of numbers and skilled workers in the U.S., with the price of labor falling on a world market. Economic Theories One point of view, mirrored by Paul R. Krugman and Robert Z. Lawrence, calls up the declarations of Adam Smith and David Ricardo. Simply put, the exchange of goods and material between individuals or nations, is beneficial to everyone. Furthermore, some manufacturing sites are more appropriate and amenable for production, than other sites. Ricardo dubbed this
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Approximate Word count = 2138
Approximate Pages = 9 (250 words per page)

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