Transcript Ending Global Apartheid

The United States in a Global Economy
What is the Global Economy?
An international marketplace (in a very
broad sense)

Trade in Goods
• Final and intermediate
goods

Trade in Services
• Outsourcing
• Vacation

Trade in Labor
• Immigration …
… legal and illegal

Trade in Capital
• Foreign direct investment
• Financial flows: stocks,
bonds, currencies
Topics for Today

Some facts about the global
economy:
• Trade flows
• Financial flows
• Labor movements

Is the global economy a threat?
• Should we worry about the trade
deficit?
• Are we becoming too indebted to the
rest of the world?
• Are immigrants taking away jobs?
Buying American?
65 % made in America
90% made in America
Ford Mustang
Toyota Sienna
Hard to distinguish: American vs.
Foreign made goods!
Economic Background: Why are
economists in favor of free trade?


Should Wisconsin grow oranges?
Should Florida make cheese?
No and No!
• Wisconsin should specialize in cheese
• Florida should specialize in orange
production
• Then trade cheese for oranges
Econ Lingo: Opportunity cost


How much orange production does WI give up
to produce one more unit of cheese? Very
little, because oranges don’t grow well in WI.
How much cheese production does WI give up
to produce one more unit of oranges? A lot!
Wisconsin
Florida
Cheese
production
Low
opportunity
cost
High
opportunity
cost
Orange
production
High
opportunity
cost
Low
opportunity
cost
More Econ Lingo: Comparative advantage

The country with the lower opportunity cost
in producing one good has a comparative
advantage in that good.
• Wisconsin has a comparative advantage in cheese
production => specialize in cheese
• Florida in orange production => specialize in oranges
Cheese
production
Orange
production
Wisconsin
Florida
Low
Comparative
opportunity
advantage
cost
High
opportunity
cost
High
Low
Comparative
opportunity opportunity
advantage
cost
cost
Economic Background: Why are
economists in favor of free trade?

Advantages:
• More total cheese and orange production
• Job gains among dairy farmers in WI and
orange growers in FL

Disadvantage:
• Job losses among dairy farmers in Florida
• Job losses among orange growers in
Wisconsin

Trade is beneficial for both states as a
whole …
… though not for all residents.
U.S. Trade Flows (exports + imports of
goods and services) as % of GDP
Recessions in yellow
More trade is
associated with
economic expansion
Trade expanded 3 times faster than GDP,
since 1950
Does the trade deficit cause unemployment?
Most of the expansion in the trade deficit occurred during the roaring 1990s!
Unemployment
drops
Since
2000
Trade deficit
expands
Before
2000
U.S. manufacturing output hurt by imports?
Manufacturing output
expands despite imports
1990s: Surge in
imports and
manufacturing
output
Since 2000: Both
recovering
2000-2002:
Manufacturing drops,
imports slow
Loss of manufacturing jobs:
Only in the U.S.?
Manufacturing jobs: 1993 normalized to 100
3m jobs lost
in the U.S.
It’s a worldwide
phenomenon!
The real culprit: Productivity
Output per
hour in
Manufacturing
Overall
Economy
How about outsourcing of service jobs?
Trade
in Services
% of GDP
The
U.S.
has aaspersistent
surplus in trade of services
4.0%
3.5%
3.0%
Surplus
Exports
2.5%
Imports
2.0%
1.5%
1.0%
0.5%
0.0%
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
How is the service industry doing?
140
135
130
Despite outsourcing
the service industry
is expanding
6.5m new
service jobs
since 2000
125
120
115
21.4m new
service jobs
in the 1990s
Service jobs
(normalized to
100 in 1990)
110
105
100
1990
1992
1994
1996
1998
2000
2002
2004
2006
Are these new service
jobs all low-paying
jobs?
How is the service industry doing?
160
150
140
High-paying service jobs:
Information, Financial, Health,
• These high-paying
service jobs accounted for
Education,
Professional and
56%
of theServices
service job growth since 1990!
Business
• In 2006 they accounted for 41% of jobs.
• Compensation in these jobs grew four
times faster than in service industry overall
130
High-paying
Total
120
110
100
1990
1992
1994
1996
1998
2000
2002
2004
2006
Summary: Trade in goods and
services


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Increased trade tends to coincide
with economic expansion
Manufacturing employment is down
in the U.S. Just like everywhere
else!
Service employment has grown
despite outsourcing.
The U.S. financial sector
in a global economy. Some facts:


Int’l financial flows are the flip side
of the trade deficit: Countries that
have a trade surplus with the U.S.
are net purchasers of our assets.
There is a trend toward more
international financial integration.
• This has coincided with less volatility in
U.S. GDP.
U.S. International Investment Position
16000
700
$365b more
assets
400
300
200
100
12000
10000
8000
14% of GDP
500
27% of GDP
600
14000
0
6000
4000
$2,546b more
liabilities:
accumulated
trade deficits!
112% of GDP
800
92% of GDP
1980: U.S. is a net creditor
(in $b) Notice the difference in scale!
2005: U.S. is a net debtor
2000
0
Assets
Direct Investment
Banks
Liabilities
Portfolio
Other Sectors
Assets
Direct Investment
Banks
Liabilities
Portfolio
Other Sectors
GDP
GDP
has growth
become (quarterly
less volatilerates,
sinceannualized)
the mid 1980s.
Some economists argue that international
has
2 timesdiversification
standard deviation
20%
been a contributing factor
around the mean
15%
10%
5%
0%
-5%
-10%
-15%
1950
1960
1970
1980
1990
2000
Summary: Financial flows


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Gross financial flows increase due to
more integration.
Net flows: Foreigners are buying
U.S. assets. They have to because
of U.S. trade deficits.
More financial integration has
coincided with less volatility in
economic growth.
• One advantage is the spreading of risk.
Labor movements: Immigration

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Historical perspective of immigration
Who are the immigrants?
Why does immigration work?
History of (legal) immigrantion:
Percent
of total
population
Immigration
is high
compared
to mid-1900s,
(10Y moving average)
but low compared to pre WW-I era!!!
1.2%
A lot of immigrants came in
the late 1800s, early 1900s
Currently about 1m
immigrants per year
(0.3% of total population)
1.0%
Drops after 1914
0.8%
0.6%
Peak demand for IT
workers in the mid 1990s
0.4%
Drops again during
the Great Depression
0.2%
0.0%
1860
1880
1900
1920
1940
1960
1980
2000
Who are the
immigrants? What’s
their age? What's their
education? How much
money do they make?
Age Distribution of Working Age Population
by Citizenship Status
(2004)
Immigrants are young
compared to the
overall population!
70%
60%
50%
40%
30%
20%
10%
0%
All
Citizens
15-39
40-64
Non-citizens
65+
Educational Attainment by Citizenship Status
(2004)
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
Native
Naturalized
Less than HS
Some college or associate degree
Advanced degree
Non-Citizens
High school graduate
Bachelor's degree
Educational Attainment by Citizenship Status
(2004)
Large fraction of uneducated
individuals among immigrants
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
Native
Naturalized
Less than HS
Some college or associate degree
Advanced degree
Non-Citizens
High school graduate
Bachelor's degree
Income Distribution of Immigrants by Generation
First generation immigrants have low(2004)
income
(they are younger, less educated), …
45%
… but consequent
generations catch up!
40%
35%
30%
25%
20%
15%
10%
5%
0%
first generation
$24,999 and less
second generation
25,000 to 49,999
third generation and
higher
All native
50,000 to 74,999
75,000 and above
How is it possible that immigration
doesn’t cause unemployment to rise?
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Growth in the demand for workers
pushes the limits of supply –
especially for low skill jobs
Immigration is one way to add to
the labor supply
Immigrants concentrate in high
growth areas of the country
Employment growth vs. Immigration by State
(2000-2006)
Immigration (2000-2006) as % of population
6%
5%
States with higher employment
growth also have more immigrants
4%
3%
Trend line
2%
1%
0%
-5%
0%
5%
10%
15%
State Employment Growth in %
20%
25%
How about illegal immigration?
Illegal immigration
… but it’s against the law!
• That’s a tautology
• Laws of economics (e.g. demand creates
supply) appears to supersede U.S.
immigration laws.
Summary on Immigration
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Large flow of immigrants, though not as
large as in the 1800s and early 1900s
Immigrants tend to be young: They help
alleviate impending problems of baby
boomer’s retirement (but can’t solve the
problem either)
Immigrants become more economically
like the native population over time
Immigration helps the economy balance
growth in labor demand with supply
Conclusion


Global Economy – Trade in the international
marketplace
Trade in goods increases during economic
expansions
• Trade deficits have not caused unemployment to
rise.
• Outsourcing has not caused declines in service
employment.

Financial flows:
• Large increases in gross and net flows.
• More financial integration has coincided with
more stable growth.

Immigration:
• Fills a demand gap