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August 20, 2008

Trade and low-income households

One of the biggest economic changes in recent years has been the reduction in trade barriers between countries. Some say this change has, in particular, hurt low-income households by moving many factory jobs to foreign countries. Is this the consensus among economists?

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Well, we've seen this impact probably more so than any other state right here in North Carolina, as we've lost tens of thousands of jobs in textiles, apparel and furniture as those jobs have gone to countries in Asia in particular, where labor costs are much lower. So the question is: Is world trade just a big negative, essentially for low-income households? And the answer, I think is a little more complicated. In fact, we have a new study that really complicates the answer because the new study says that if you look at the benefits of trade, in particular look at the fact that trade has allowed the prices of many products that we buy - like clothing, manufactured products - to go down. And then you look who buys those manufactured products, and what you find is low-income people actually spend a higher percentage of their income on those products whose prices have gone down as a result of increased world trade. And so the conclusion here is that there are pluses and minuses, particularly for low-income people. Yes, a low-income person may have lost their job and had, perhaps, to move to a different kind of job because of trade. But on the other hand, many of the things they're buying have gone down in price. Now, unfortunately, the authors aren't able to combine those two and say on net, is a particular household better off or worse off. But at least this does give us some parameters to consider that issue."

Posted by Dave at August 20, 2008 08:00 AM