One theory is that relatively high wages there (a result of international trade) created an urgency for firms to substitute machinery for human labor. Over time, finding ways to do more with fewer workers generated higher incomes and living standards. But why might the labor market of the 2020s be a tight one? It boils down to two big ideas: shifts in the global economy and demographics that make workers scarcer in the coming decade than in recent ones; and a newfound and bipartisan determination on the part of policymakers in Washington to achieve full employment. Imagine an isolated farm town with 100 people. Five of the 100 own the farms. An additional 10 act as managers on behalf of the owners. And there are five intellectuals who sit around thinking big thoughts. The other 80 people are laborers. What would happen if suddenly another 80 laborers showed up, people who were used to lower living standards? The intellectuals might tell a complex story about how the influx of labor would eventually make everyone better off, as more land was cultivated and workers could specialize more. The owners and their managers would be check my reference happy because they would be instantly richer (they could pay people less to plow the fields). But the existing 80 laborers — competing for their jobs with an influx of lower-paid people — would see only immediate pain. The long-term argument that everybody gets richer in the end wouldn’t carry much weight. That’s essentially what has happened in the last few decades as China has gone from being isolated to being deeply integrated in the world economy. When the country joined the World Trade Organization in 2001, its population of 1.28 billion was bigger than that of the combined 34 advanced countries that make up the Organization for Economic Cooperation and Development (1.16 billion). But that was a one-time adjustment, and wages are rising visit this site rapidly in China as it moves beyond low-end manufacturing and toward more sophisticated goods. India, the only other country with comparable population, is already well integrated into the world economy. To the degree globalization continues, it should be a more gradual process. For years, American workers were also coming into competition with lower-earning Mexicans after enactment of the North American Free Trade Agreement in 1994.


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