Think Globally, Act Locally

(3 of 4)
H

MANN: I disagree with you. Labor economists know a lot about how to promote skills evolution in the face of change. We know a lot about re-employment. So there is a sense of understanding among the policy community. There is not that sense of urgency or desire to spend any money in the political community.

BAUMOL: My worry is that there's the wrong sense of urgency, one that will make for pressures for impediments to trade instead of dealing with the problems of the sort that you were discussing.

HIRA: The economics profession seems to be very, very concerned about protectionism. I think that's clouded some of their arguments, understating the problems that are created from globalization. Unless companies start to face competition and problems from this, there's no sense of urgency from their point of view.

SLAUGHTER: Much of the discussion is breathlessly waiting for next month's unemployment report and seeing how many manufacturing jobs there are in Ohio and Florida. That is nowhere near sufficient to grapple with the sort of issues we've talked about. The median person in the U.S. labor force today has a high school diploma and about one year of post-high school education. That person is going to have a job, but how productive and how highly compensated is that job going to be? Maybe we could have tax cuts for less skilled Americans.

MANN: Or an income tax credit.

SLAUGHTER: I would also love to hear more discussion about immigration.

TIME: Immigration is a thorny topic. Businesses may want to hire skilled immigrants, but some people argue that they take jobs away from Americans. Is there a way to connect immigration policy to competitiveness?

SLAUGHTER: One could start with the issue of How many H1-B visas are we going to issue? You want to ameliorate the pressures in the labor market, but you should also try to soften the impact, at least initially, of more workers arriving in the system who will compete with workers in the U.S.

HIRA: I think Professor Slaughter doesn't understand fully how the H1-B is being utilized. Many of the Indian IT firms — their whole business model is about bringing in inexpensive foreign labor so they can underbid their U.S. rivals. This discussion is an important one, but it's all about how a U.S. firm will benefit from globalization. There's no guarantee these firms will actually hire U.S. workers to serve those markets. There's a fundamental shift in the bargaining power between workers and firms.

BAUMOL: Trade policy is not the way to deal with unemployment. But you are right, the bargaining power of U.S. workers and the U.S. worker's wage is very heavily affected by globalization. Paul Samuelson has just written on the subject. He said if you believe this doesn't affect American wages, you also believe in the tooth fairy.

MANN: There are two sets of issues with respect to labor- market adjustment. One has to do with people who have lost their job in an area where there's no replacement. That has to be addressed through wage insurance, through unemployment insurance, through the portability of health care and pensions. So if you lose your job, you don't lose everything else with it. But there is a different problem: firms do not have an incentive to, say, take people who are programmers and train them to be systems-integration network engineers. We ought to have some kind of human-capital-investment tax credit, which would subsidize, for example, cross training an IT person in another sector, like health care. It improves the match between the workers' skills and the skills that are being demanded. The nation as a whole gets a spillover benefit if all firms engage in this kind of training. The other component of this would be subsidizing the first rung on the career ladder — through internships, apprenticeships — in professions where that first rung is now being done in some other country.