Job Losses and Trade: A Reality Check

March 17, 2004 • Trade Briefing Paper No. 19

Fears about job losses and chronic job shortages are on the loose again. Over the past few years, millions of U.S. jobs have disappeared, and foreign competition is increasingly taking the blame. Manufacturing jobs are supposedly fleeing to China, while service‐​sector jobs are being “offshored” to India.

Job losses are always painful, and the recent recession and sluggish recovery have meant real hardship for many Americans. It is important, however, to shun hysteria and demagoguery in assessing what is going on with the labor market and why. The employment picture today is that of a temporary, cyclical shortage of jobs caused by the recent downturn; there is no permanent shortage of good jobs on the horizon.

Even in good times, job losses are an inescapable fact of life in a dynamic market economy. Old jobs are constantly being eliminated as new positions are created. Total U.S. private‐​sector jobs increased by 17.8 million between 1993 and 2002. To produce that healthy net increase, a breath‐​taking total of 327.7 million jobs were added, while 309.9 million jobs were lost. In other words, for every one new net private‐​sector job created during that period, 18.4 gross job additions had to offset 17.4 gross job losses.

International trade contributes only modestly to this frenetic job turnover. Between 2000 and 2003, manufacturing employment dropped by nearly 2.8 million, yet imports of manufactured goods rose only 0.6 percent. Meanwhile, despite the new offshoring trend, the Department of Labor is forecasting a 35 percent increase in computer‐​and math‐​related jobs over the next decade.

Calls for new trade restrictions to preserve current jobs are misguided. There is no significant difference between jobs lost because of trade and those lost because of technologies or work processes. All of those job losses are a painful but necessary part of the larger process of innovation and productivity increases that is the source of new wealth and rising living standards.

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