Critics of trade counter that real wages have stagnated while the middle class has been squeezed by a loss of jobs to low‐wage competitors such as China and Mexico. Democrats in Congress point to those anxieties to justify their opposition to any meaningful trade‐expanding legislation — including pending free trade accords with South Korea and Colombia and renewal of presidential trade‐promotion authority.
Like so many assumptions about trade, the belief that more global competition has somehow lowered the living standards of the average American worker and family is just a myth.
The critics have it all wrong: The middle class isn’t disappearing — it’s moving up.
The Census reports that the share of U.S. households earning $35,000 to $75,000 a year (in ’06 dollars) — roughly, the middle class — has indeed shrunk slightly over the last decade, from 34 percent to 33 percent. But so, too, has the share earning less than $35,000 — from 40 percent to 37 percent.
It’s the share of households earning more than $75,000 that’s jumped — from 26 percent to 30 percent.
Trade has helped America transform itself into a middle‐class service economy. Yes, the country’s lost a net 3.3 million manufacturing jobs in the past decade — but it’s added a net 11.6 million jobs in service and other sectors where average wages are higher than in manufacturing. Most of these new jobs are in better‐paying categories, like professional and business services, finance and education and health services.
Trade and globalization have also helped bolster the balance sheets of American households by delivering higher incomes, lower interest rates and wider investment opportunities. From 1995 to 2004, the real median net worth of U.S. households jumped by 31 percent, boosted by rising home values and stock prices. (Even with the recent housing slump, average home values remain more than 2.5 times what they were a decade ago, according to the S&P/Case-Shiller index.)
Despite frequently heard worries, American families are not “drowning in debt.” Yes, total household debt has risen in the past decade — but total assets have risen in value even faster.
On average, U.S. households spent 14.4 percent of their income on debt payments in 2004, not much different from the 14.1 percent they spent in 1995. The bulk of what we’ve borrowed hasn’t paid for groceries or big‐screen TVs but for housing — which, again, has appreciated strongly in the last decade.
Like so many assumptions floating around about trade, the belief that more global competition has somehow lowered the living standards of the average worker and family is just a myth. In fact, trade has delivered lower prices, higher worker compensation and an upwardly mobile middle class.