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Stated very simply, when a company builds a factory in a foreign country, it generally creates new jobs. Foreign investment in the United States contributes significantly to domestic employment. According to the Bureau of Economic Analysis, in 2007, roughly 4.7 percent of the U.S. labor force was employed by foreign-owned enterprises.12 (Note: Because most foreign investment into the United States is portfolio investment, rather than direct, as discussed above, one might assume that foreign investment would account for more than 4.5 percent of the jobs in the United States. Portfolio investment undoubtedly accounts for a large number of jobs in the U.S., but is harder to quantify because it often involves ownership of a portion of a company, making the numbers harder to disaggregate.)
Opponents of globalization often express concerns about jobs lost in the domestic economy when a factory moves abroad, and about downward pressure on wages at home due to the availability of cheaper labor abroad. Job losses can mean that displaced domestic workers, though unlikely to remain unemployed permanently, may be forced to take lower-paying jobs. But any downward pressure on wages in general (for those in trade and non-trade related industries) may be offset by lower prices for domestic consumers as a whole due to the movement of the factory.
Consider the following process: a company moves its factory to a less developed country to take advantage of lower labor costs and increase its profits. The poorer country may be said to have a comparative advantagein the production of low-skill, labor-intensive goods, such as textiles and apparel. Other companies follow to gain the benefits of lower costs of labor, and are likely to cut their prices to compete with the company already established in the poor country. As competition increases, consumers in the home market as well as those in the poor market will benefit from lower prices, while the less developed country has all the benefits of new know-how, jobs, and related consumer demand.
| Globalization has raised numerous issues of concern about labor markets. Foreign investment, trade, technology, and immigration, to name a few issues, are all disruptive to traditional means of productions. While most economists believe that the changes brought about by these factors tend to work to promote economic efficiency, and have great potential to improve the living standards of people all over the world, a host of concerns remain. Numerous proposals have been put forth to help mitigate the disruptions caused by globalization. |
Bringing down the prices of goods and services has the same effect as giving a pay raise to every worker who has access to these cheaper goods: their paycheck can now buy more.
12 http://www.census.gov/compendia/statab/2011/tables/11s1292.pdf
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