Christopher Fries, Brayan Reyes, and Kenneth Schoolcraft
Christopher Fries, Brayan Reyes, and Kenneth Schoolcraft
Introduction
The first section outlines the trend of job outsourcing and how that has affected the wages of workers as well as the displacement of and unions. The second section goes over different regions of the world in regard to foreign direct investment and how it affects those regions. The third section discusses how trade barriers and tariffs affect productivity of companies and what economies can do to try optimize their trade.
Jobs going overseas and over borders with effects of income inequality
Economies are more globalized in order to gain any sort of economic advantage. According to the graph from the St. Louis Federal Reserve overall trade in the United States has been consistently increasing. This increase in globalization can be shown from the graph below which depicts domestic imports in red and domestic.exports in blue. It is clear that overall trade going in and out of the United States has consistently been increasing with a huge spike in the past two decades.
Not only does this increase in international trade include the exchange of goods and commodities, but also the trading of services and labor. This outsourcing of labor has allowed firms to produce goods and services using labor that is much cheaper than in their native country. For example, in most Asian countries such as China and India real wage costs are much lower than in the U.S. (Liang 130). Not only has this had implications on the country that has experienced its labor move overseas, but it also drastically affects the nation in which the labor moves too which has contributed to an ever increasing income inequality.
The outsourcing of labor has contributed to income inequality both domestically and overseas through the changes of real wages that workers will experience. Feenstra and Hanson (1999) identified the changes in the wages of low-skilled labor and high skilled labor being moved overseas from 1979-1990. They also looked at how this was also influenced by improving technologies with the rise of the computer being one of the main focuses.Overall, it was found that the relative wage of high-skilled labor to low-skilled labor increased by at least .29%. The rise of skill based technology such as the computer eventually raised this by .56% (Feenstra 935-936).
This trend is also prevalent in low-skilled European labor markets affected by outsourcing. In European markets, for every 1% increase in outsourcing intensity, there is a real wage decrease of .36% for low-skilled workers (Kraciuk 40). Another economist, Geishecker (2005) observed how wages of low skilled and high skilled workers is influenced by outsourcing by using data from Germany. Wages of jobs in Germany that are eventually outsourced are examined across 21 different industries. These industries examined include anything from textiles to computers to printing and are split up into high skill-intensive industries and low-skill intensive industr