Waylaid Dialectic

November 22, 2016

Trade doesn’t kill people; change does

Filed under: Random Musings — terence @ 9:27 am

An interesting NBER working paper by Justin Pierce and Peter Schott.

The abstract:

We investigate the impact of a large economic shock on mortality. We find that counties more exposed to a plausibly exogenous trade liberalization exhibit higher rates of suicide and related causes of death, concentrated among whites, especially white males. These trends are consistent with our finding that more-exposed counties experience relative declines in manufacturing employment, a sector in which whites and males are disproportionately employed. We also examine other causes of death that might be related to labor market disruption and find both positive and negative relationships. More-exposed counties, for example, exhibit lower rates of fatal heart attacks.

The standard defence of trade runs something along the lines of: sure there will be losers from trade liberalisation but there will also be winners and the winners can compensate the losers.

The first problem with this is simple political economy: often the winners don’t want to compensate the losers. And the winners (they won after all) usually have more political power.

The second problem is that the sort of compensation that is most easily enacted, unemployment benefits, while essential, probably does not compensate that well for losing the psychological benefits of work.

The third problem is that while people might re-skill and then move elsewhere to find work, this is actually a whole heap harder to do for most people than you would think.

This doesn’t mean we should not trade internationally. But if you are going to be honest in your assessments of the pros and cons of international trade agreements and the change they bring, you need to take into account the fact that, often, change in the form of losing your job is a much more painful and uncertain process than it’s assumed to be in economic models.

[update: Tim Duy]

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