Globalization and Living Standards

Richard Freeman contemplates the effects of world workforce doubling with the fall of the Soviet Union, China’s turn to the market and India’s liberalization. What effect has this globalization process had on wages worldwide? Though world wages were probably affected, Freeman emphasizes the fact that education and innovation are countervailing forces to wage repression. While he considers globalization as a “positive” especially in the long run, he suggests that the gains from the process can be reversed in the face of pandemics, climate change, ongoing terrorism, “political insanity” and capital markets failures. He ends with some good and bad scenarios for the future. Edward Leamer takes up the question of whether tariffs on imports raise wages as a counter-factual to whether open trade markets depress wages. He outlines four economic models to answer the question: Ricardo Model, Ricardo-Viner Model, Heckscher-Ohlin Model and the Stolper-Samuelson Theorem. He concludes that wages in capital-intensive industries generally are maintained; they remain low in labor-intensive industries; and they are subject to fluctuation in mixed industries. He argues that the US must shift its policies, especially in education, from an industrial to a post-industrial perspective. The accompanying audio files provide the complete recording of the two talks.