Publisher Council on Foreign Relations Press
Release Date March 2011
This Working Paper by Nobel Laureate Michael Spence and Sandile Hlatshwayo is a detailed examination of the changing shape of the American economy and the effect of these changes on the labor market and the cost of goods. Spence and Hlatshwayo focus on trends in value added per employee in the tradable and nontradable sectors over the past twenty years.
They note that the American economy has seen the lower and middle components of the value-added chain moving to the rapidly growing markets abroad and warn that soon higher-paying jobs may follow low-paying jobs in leaving the United States. The actions of the free market have made goods less expensive for Americans, but the free flow of labor and capital has also diminished the employment opportunities available in the United States and will, the authors warn, continue to do so at all levels of society. Spence and Hlatshwayo suggest that policymakers acknowledge the trade-off between the cost of goods and the availability of jobs, and they explore policies that may improve it. While the authors acknowledge that there is no simple policy fix to improve the trade-off between inexpensive goods and diminished domestic job opportunities, they argue that given the political salience of the issues at stake, policymakers must work to tackle this enormous question of inequality and economic distribution.