A couple of weeks ago I wrote a quick diary reflecting on the upcoming trade negotiations between the EU and US. It reflected on the fact that proponents praise the forthcoming trade agreement for its potential to breathe life into recession-torn economies (via export-related job growth), but cautioned that export gains are responsible for creating a decreasing number of new jobs, and that other rosy predictions for trade-related job growth haven’t exactly panned out.
The diary didn't get much traffic in way of comments, but nonetheless I was surprised by the undisturbed nature of the small number of replies that were made. In short, commenters noted that because the EU and US have similarly advanced economies, wages, and regulatory protections, we shouldn't worry too much about jobs being outsourced or about imports causing significant job losses. Unfortunately, things are not so straightforward.
I should mention that I'm by no means an international trade expert. My interest in trade stems from my work as a public health researcher. The connection might seem bizarre, but as a public health researcher I am interested in the social factors that contribute to people’s health. Social factors like peoples’ income, education, employment---essentially, the types of resources which allow us to exert some sort of control over our life: where we live, what kind of employment we can take up, how much time we can spend with our families, the type of food we can afford. In other words, rather than being interested in things like healthcare and medicine (factors that help us when we’re sick), I am interested in the types of factors which help us from becoming sick in the first place.
This is where trade enters into the equation. If trade has an impact on these important social factors, like employment and income, we need to know what that impact is. It is true, generally speaking, that the US and EU are both advanced economies, but the EU is not a homogeneous market. The EU is an economic and political union made up of 27 very different countries. As such, there are a handful of countries in the EU where labour costs in the manufacturing sector are significantly lower than they are in the US. Below is a graph from the US Department of Labor. It shows that in the US, manufacturing costs are $35.53 per hour. This is lower than costs in some EU countries like Norway, Belgium or Denmark, which might fare well for the US when it comes to the US/EU trade agreement. But take a look at some of the EU countries on the right hand side of the chart, where labour costs are much less than they are in the US – for example in Estonia, Hungary, and Poland. In Poland manufacturing costs are 75% lower than they are in the US; workers in the manufacturing sector in Poland receive only slightly higher wages than manufacturing workers in Mexico.