The Corner

Trade, Wages and the Middle Class

Harold Meyerson has written a nasty column using the 20th anniversery of Tiananmen as an opportunity to smear Wal-Mart. The piece doesn’t make much sense at all, but I want to focus on just one of the several unsupported claims Meyerson makes:

The transfer of manufacturing from the United States to China — driven by the rise of mega-retailers such as Wal-Mart that have been able to enforce a regime of low wages all along their global supply chains — has diminished our middle class and expanded theirs.

Where’s the evidence for this? Cribbing from a piece I wrote for the print mag a few months ago:

Since the mid-1990s, trade between the U.S. and the rest of the world has grown by an average of 7.5 percent a year, and the trade deficit (imports minus exports) has grown by an average of 14.5 percent a year. During that same period, the economy added an average of 1.25 million new jobs a year, and the average unemployment rate was a very low 5 percent. Spikes in unemployment during the recessions of 2001–02 and late 2008 coincided with declines in both total trade and the trade deficit, as Americans had less money to spend on imports. High rates of job creation, on the other hand, were accompanied by high rates of trading activity. Trade is a sign of a healthy, dynamic economy.

Protectionists explain away the last decade’s low unemployment rate by arguing that good-paying manufacturing jobs have been replaced by low-paying “McJobs” in the service sector — that trade liberalization caused wages to stagnate. But Cato’s Dan Griswold pointed out in a 2007 analysis that “Average real compensation per hour paid to American workers, which includes benefits as well as wages, has increased by 22 percent in the past decade.”

Benefits represent a growing share of compensation; coincidentally, Meyerson’s Washington Post colleague Ezra Klein blogged about this issue today. His argument is that workers should be more angry about the rising cost of health care, because “the main reason for stagnant wages is that their wage increases are going to pay for their health insurance premiums.”

Rising health care costs are indeed a problem for the middle class, though Klein and I do not agree on the solution. But if liberals are going to start blaming stagant wages on the cost of health care, are they also prepared to admit that all that nonsense about trade destroying the middle class was just a canard?

As for Wal-Mart’s impact on the American middle class, the last study I saw estimated that Wal-Mart saves families around $2,500 per year. I don’t think rich families banked the bulk of that.

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