Thursday, March 22, 2012

Profits, Wages, and Jobs in a World of Globalized Production - the Case of the iPod

File:IPod family.png
Source: Matthieu Riegler, Wikimedia Commons
Like many, I have been reflecting on the decline in U.S. manufacturing employment in recent decades, and grappling with whether, why, and how it matters for our country. One would be hard-pressed to find a more insightful researcher on this topic than Jason Dedrick of Syracuse University, who visited us at the USITC this week. I will post a link to his very interesting presentation once it appears on the USITC's website. In the meantime, here is a link to  "Innovation and Job Creation in a Global Economy: the Case of Apple's iPod", a paper that he, Greg Linden of UC-Berkeley, and Kenneth Kraemer of UC-Irvine published in the Journal of International Commerce and Economics in 2011. Also interesting is "Who Profits from Innovation in Global Value Chains? A Study of the iPod and notebook PCs," a conference paper by the same authors from 2008.

The most compelling lesson I took away from Dr. Dedrick's and his colleagues' work was that the U.S. has undoubtedly lost a lot of manufacturing production jobs to other countries, but much of the design work has remained onshore. As a result, the United States appears to be keeping substantial shares of the profits, jobs, and wages generated from products manufactured via global production chains, such as the iPod. U.S. employment in engineering and high-skilled professional jobs associated with such production have proven resilient. Bilateral trade statistics, such as those showing a large deficit in U.S.-China goods trade, risk painting a misleading picture of the distribution of benefits from the iPod and other such "Made in China" products.

However, the negative impacts of the globalization of production on (former) production workers in the United States appear undeniable. Even if the shift of those jobs out of the United States ultimately produces net benefits for the U.S. economy--which is a strong possibility--those so displaced are left all too often with few ready options for employment, at least at the wage levels they enjoyed previously.

Here's the big takeaway for me: policymakers seeking an appropriate response to the decline in U.S. manufacturing employment should focus less on trade policy and far more intently on education and workforce development. We need a far more cohesive and aggressive national strategy for upgrading the skills of our present workers and educating our students for the high-skilled science, engineering, and technology jobs that are critical to maintaining the United States' edge in innovation--and that are far more likely than lower-skilled production jobs to remain on-shore while continuing to offer attractive wages.

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