Monday, November 19, 2007

Today's Post on Economics (Less Filling And Tastes Great)

One of the effects of globalization or international competition in general is well known: Certain domestic industries suffer because they are no longer competitive and workers in them will be laid off. What should those workers do next?

The traditional economics answer is retraining. You go back to school, get new skills in something your country still can compete in, you then get a new career and all will be fine.

The shorthand of this pretty much states that there will be those immediate losses of jobs and earnings but in the longer-run everything will be just dandy. A comment at Eschaton threads the other day points out that this shorthand story is a fairy tale. Here is the comment by jen:

Yup. And the rest of us who make well under that amount are suffering what I like to call "regressive wages." Meaning, your career gets tied up with a big red bow and shipped overseas, leaving you to deal with unemployment or underemployment for a year or two or three. Then you spend your savings to go back to school and start over in a new career. Upon starting over you can't make any better than a shitty entry level salary despite two decades of work experience. Meanwhile the nest egg is gone and you're up to your eyeballs in debt again, because even though your wages have taken a nose dive, the cost of living has continued to increase.

You're forty-something now and have no idea where your child's college money is going to come from, let alone retirement savings. And then, as if you haven't been kicked in the balls hard enough, you find out your new career is likely to experience an "explosion" in offshoring by the end of 2008.

The point jen makes is an important one: Changing careers is not a costless operation but an incredibly costly one, and the post doesn't quantify the costs of mental suffering at all.

In general economic arguments tend to downplay the costs to people from moving or from changing careers or from other adjustments the market deems necessary. Moving, for instance, is seen as an easy way to adjust to your firm juggling its operations, and it may well be better than being laid off. But moving means losing all the support structures your family may have developed, pulling the children out of the schools in which they have made their friends and possibly also causing your spouse to lose a job he or she likes and needs. Moving is expensive.

And so is job retraining caused by globalization. These costs should be kept in mind when discussing the advantages of global markets.