New York Times
by Edward Conard
September 19, 2016
When manufacturing jobs are outsourced, economists believe that opportunistic entrepreneurs will race to employ displaced workers and competition will raise their productivity and wages.
But high-tech entrepreneurs have moved to large cities and outsourced their blue-collar jobs to China, while the engineers who remain behind now design products that employ offshore workers. This brain drain slows low-skilled productivity and wage growth and depresses the wages of displaced communities for decades.
Unfortunately, America can’t forego trade or innovation that lowers costs and still remain competitive in the long run. Thus, it may grow harder to close the wage gap between urban and rural workers. Regardless, we can still accelerate wage growth.
We shouldn’t let Germany, China and Mexico use trade deficits to export our employment when we have little use for their risk-averse savings. To put displaced workers back to work, Americans must borrow, and spend, unused offshore savings that result from trade deficits. Trade deficits occur when offshore manufacturers sell products to Americans, but then loan the proceeds to the U.S. rather than buying American-made products. But savings currently sit unused despite near-zero interest rates, because talent and risk-taking constrain growth in America’s knowledge-based economy. Issuing a dollar’s worth of import licenses for every dollar of exports balances trade without restricting it. There are plenty of competitive American products to buy.
The U.S. could also attract more international competitors by cutting its uncompetitive corporate tax rate to lower the cost of operating globally from America. More international companies with bases in the U.S. would employ many workers and local services.
We must also recognize that low-wage workers are high-cost workers. That’s why they are the first workers laid off in a recession and the last workers rehired. Don’t raise the minimum wage, which excludes the lowest-skilled workers. Subsidize low-wage employers, instead of vilifying them, to create more demand for low-skilled workers. Reconsider incentives that discourage work. And reduce restrictions on construction to lower the cost of housing.
In an economy where talent restricts growth, increasing the ratio of high- to low-skilled workers would accelerate growth and raise low-skilled wages. We could recruit more ultra high-skilled immigrants and inculcate a moral obligation in talented people to create jobs for others