Tuesday, May 6, 2014

Free trade benefits everyone.

Many people seem to think that allowing free trade will lead to declining wages for American workers. This doesn't make sense to me, since we know that worker's wages are based off their productivity, not trade policy. Regardless, a plethora of empirical research has been done on the matter. 

According to the Organization for Economic Co-operation and Development (OECD):

"Of the 14 main studies undertaken since 2000 reviewed in the publication Policy Priorities for International Trade and Jobs, all 14 have concluded that trade plays an independent and positive role in raising incomes." [1]

According to research, workers in sectors of the economy which are more open to international trade make much more than those in sectors where there isn't much. This makes sense since opening a country to trade allows foreign companies to compete for domestic workers. For example:

"Over the 1970-2000 period, manufacturing workers in open economies benefitted from pay rates that were between 3 and 9 times greater than those in closed economies, depending on the region."

Additionally, the OECD notes that studies either find free trade to not effect unemployment, or to decrease it. Thus, there is not evidence to support the notion that free trade will lead to unemployment.


[1] http://www.oecd.org/trade/tradeandjobs.htm

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