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Globalization and the American Economy

Updated on November 12, 2017

Globalization has become synonymous in the blue collared American public with job loss. The idea that “American” jobs are being sent overseas for cheap labor and even cheaper products. This however is not what the ideals of globalization are built on. The purpose of globalization is to unite and create a better world economy with trades of goods, services, and capital. Can the United States, one of the world’s leading economies, help move the world forward without hurting themselves though? Has the economy taken a down turn in the name of globalization? We will be taking a look at large scale industries, and the American public to do so.

One of America’s largest industries in its long line of innovation and manufacturing is the automobile industry. Jeffery Rothstein spent years in three different automobile plants to see what the effects of globalization have done to a higher end industry. The automobile industry is being considered as higher end due to company stability and union representation. Rothstein had found in his multi-year study that these automobile companies were using globalization as threats to their workers. This was seen as a form of “whip-sawing”, a tactic used by management to threaten workers. The employees were being told that if labor and production demands were not met, their plant would be closed and the jobs were going to Mexico. Through Rothstein’s study it can be argued that globalization has not only directly impacted the economy, but also indirectly as well.

Rothstein’s study gives a deeper look directly into a specific industry, but what about the economy as a whole. How has the average American been effected? A report from Josh Bivens of the Economic Policy Institute says that the increased trade with developing countries and the moving of jobs is costing workers around $1,800 or an earnings loss of 5.5%. Bivens puts into perspective though that globalization is not the only cause for these losses. A reason stated for such drastic losses is the over valuing of the U.S dollar, which is increasing the price for exports, but decreasing the price for imports. The connection can be made that due to the dollar being highly valued, it is cheaper to import goods, causing jobs to be lost. Bivens also makes the point that with this decrease in wages for non-college graduates comes an increase in wages for college graduates. As a fundamental rule of economics, an increase in money comes an increase in spending. There is a balance between the two and not just a loss of wages for one party.

With these negatives, there are however some positives. The effects of globalization are resonating through developing countries as the World Bank is encouraging these countries to remove trade restrictions. As these restrictions are lifted developed countries, like the U.S, can trade their products for materials, food, or goods. The lifting of trade restrictions and a free global market has decreased the chances of war as well. Another thing this gives developed countries is the ability to invest into the economies of the developing countries. In doing so, the developed countries can charge high interest rates, yielding a high return.

The biggest problem that has come from globalization is that it has increased the wage gap. As touched upon earlier, the rich are becoming richer and the poor are getting poorer. As job may be moved overseas the costs of labor and materials will go down. With these decreases in costs one would hope that the new increases of available funds would go to paying the American worker, but they do not, they go to high level executives of these companies. The Economic Policy Institute had found between 1978 and 2014 that executive pay had increased by 994% while private sector and non-supervisory level workers only increased by 10.9% (Mishel). With the decreasing middle class, the effects of globalization are being contributed to its loss.

Bivens, Josh. “Using standard models to benchmark the costs of globalization for American workers without a college degree.” Economic Policy Institute, 22 Mar. 2013, www.epi.org/publication/standard-models-benchmark-costs-globalization/.

Hamdi, Fairooz. “The Impact of Globalization in the Developing Countries.” Linked-In, 11 June 2015, www.linkedin.com/pulse/impact-globalization-developing-countries-fairooz-hamdi.

Mishel, Lawrence. “CEO Pay Has Grown 90 Times Faster than Typical Worker Pay Since 1978.” CEO Pay Has Grown 90 Times Faster than Typical Worker Pay Since 1978 , Economic Policy Institute, 1 July 2015, www.epi.org/publication/ceo-pay-has-grown- 90- times-faster-than-typical-worker-pay-since-1978/.

Rothstein, Jeffrey S. When good jobs go bad: globalization, de-Unionization, and declining job quality in the North American auto industry. Rutgers University Press, 2016.

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