Siddhant Kothari

EGB Final Paper

Prof. Foudy

Is globalization benefiting or hurting the average worker in the

U.S.?
The Financial Times Lexicon defines globalization as the integration of
economies, industries, markets, cultures and policy-making around the globe.
Trade levels, ease of travel and transport, and the huge increase in ease,
affordability and quality of communication have all made the world a smaller
place than before, resulting in greater global interconnectivity and cooperation.
Markets that used to be relatively local, such as the labour market, have now
become global. The spread and easy availability of information has allowed
individuals and firms to specialize to a very high degree. The impact of
globalisation on world business practices has been enormous. This essay aims to
analyse the overall impact of globalization, primarily from an economic
perspective, on the average worker in the U.S.
We must first understand the Average Joe/Jane in broad terms, such as
type of job, age brackets, income, consumption and savings. While the term
average may be misleading, since diversity within the US workforce means that
an even an average or middling trait is unlikely to be exhibited by the
majority of the workforce; it is nonetheless crucial to understand the average

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Siddhant Kothari

EGB Final Paper

Prof. Foudy

American worker in some broad terms in order to perform analysis. The Census
Bureaus Current Population Survey Annual Social and Economic Supplement,
which is considered representative by the US Census Bureau, suggests that the
median income within the US is $27,851 (US Census Bureau, 2014). The median
has been chosen over the mean because the mean income (here $41,319) tends to
be skewed and thus unrepresentative of the true average due to very high
incomes for the wealthiest which tend to inflate results. Similarly, the Bureau of
Labour Statistics suggests that the median age of the workforce is about 41.9
years, with relatively slight differences arising from differences in gender, race
and ethnicity. The average American worker works in an office, has graduated
high school, may have been to college but has not graduated a 4-year college,
spends almost all their income, has very low savings, and is dependent on debt
(US Census Bureau, 2004). With this basic outline of the average American, we
can explore the effects of globalisation.
One of the largest effects of globalisation is the increased volume of trade
due to lower costs of specialized manufacturing and transportation as compared
to separate production. World Bank data suggests the US had imports of $2.77
trillion in 2013, up from $1.98 in 2009 and $2.36 trillion in 2010. However,

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Siddhant Kothari

EGB Final Paper

Prof. Foudy

imports in 2008 were far higher than 2009-11, at $2.56. The large fall in
spending on imports over 22% between 2008 and 2009 due to the recession
suggests that some part of imports tend to make up more of discretionary
spending for the average American worker. Imports essentially allow American
workers access to a far wider array of purchase options from which to choose, and
at lower costs due to specialization. The protectionist counterargument is that all
the imports being consumed by the US Economy result in outflows of money and
employment opportunities, thus resulting, potentially, in lower income and/or
unemployment for the average US worker as income and employment are created
overseas rather than in the US. However, as David Ricardo demonstrated, loss of
jobs due to trade is a result of natural comparative advantages which would
bring other jobs to the US and result in exports, while also maximizing overall
global efficiency in term of maximizing output.
Exports can be the biggest boon to an economy in terms of globalisation, as
they can allow some countries with an advantage in terms of a particular factor
of production, most frequently labour, to specialize and become an exporting
powerhouse. An example is Chinas manufacturing expertise or the USs leading
technological development sector. However, this is not the case for the average US

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EGB Final Paper

Prof. Foudy

worker, as they tend to be employed in sectors that are less financially rewarding
than technology and computers. The US is, nonetheless, one of the worlds largest
exporters of goods and services, and as such exports create a number of jobs and
thus result in employment opportunities for the average US worker, in addition
to higher potential wages due to inflows from abroad. However, one could make
the argument that the employment opportunities and income lost by the average
American worker due to imports are not entirely offset by the effects of exports.
This is because many of the USs exports are not labour intensive and often
benefit few average-level workers. The USs biggest exports are capital
equipment (machines for manufacturing), electronics, oil, vehicles, aircraft and
spacecraft, and then consumer goods (Thuy Vo, 2012). Refining of oil, and
manufacture of aircraft and spacecraft are not labour intensive, while the the
automobile industry has pioneered reducing workforces through innovation and
technology, and is now looking more for employees with skillsets that the average
American will not have without retraining (Dill, 2015). For items such as
electronics, American companies tend to outsource manufacturing, the prime
example being Apple thus, while jobs are created for high-skilled designers and
engineers, the average American does not benefit as much, and the exports are

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Siddhant Kothari

EGB Final Paper

Prof. Foudy

actually counted as part of the foreign countrys exports. For example, all U.S.
iPhone sales count as exports for China; this could also be part of the reason the
US has a trade deficit, even though so many US companies sell products all over
the world.
One of the key forces in determining the effect of globalisation is the
exchange rate. As the exchange rate of a country becomes stronger, they can
purchase more goods and services as imports become cheaper in their own
currency. A stronger exchange rate makes imports much cheaper but
consequently also makes exports less competitive in the international market, as
the price in the local currency is too high in the international market. Conversely,
as the exchange rate becomes weaker, imports tend to become too expensive
while exports become more competitive since they are cheaper than alternatives
in the international market. Since the US has a relatively strong currency, used
today as an internationally accepted standard along with the Euro and the
Pound Sterling (Investopedia, 2011), and many foreign countries tend to
artificially devalue their currencies, this adds to the greater purchasing power for
the average US worker relative to other countries, especially less developed
countries, but also translates to less exports from the US. Thus, in a difficult

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EGB Final Paper

Prof. Foudy

economy one might argue that these factors of globalisation cause unemployment
in the US, whereas the same factors would contribute to the greater purchasing
power and lifestyle of the average US worker when the economy is booming. It is
important to remember, however, that when comparing the relative purchasing
strength of the average US worker and the average worker of a another country,
it is important to consider purchasing power parity. For example, a US dollar
today costs 65 rupees. However, a large order of fries at McDonalds in the US
costs $2.19 before tax, while in India the same fries cost only Rs. 56 (McDonalds
India), thus effectively costing only 85 cents in India. Thus, according to the
(extremely limited) basket taken here, the ordinary Indian would be able to buy
the same basket of goods with 40% of the money that the ordinary American
would use. Thus we see how the concept of purchasing power parity essentially
increases purchasing power in countries with weaker currencies simply put, the
price level is lower and so prices have to be lower to compensate.
One of the most significant changes due to globalisation and its associated
processes and technologies such as easy air travel, the increased use of English
as a global language (especially in India and China), and the internet mean
than an increasing proportion of students at American Universities are from

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Siddhant Kothari

EGB Final Paper

Prof. Foudy

other countries. Since these international students are directly competing with
Americans for admissions, grades and eventually jobs, one might argue that this
is not in the best interests of the Average American, since the Average American
has not graduated college and may have done so had there not been any
international students, and thus gotten a better job and thus raised the average!
In fact, the largest part of the problem for the average American is
education and skills. While the vast majority of Americans have graduated high
school, only about 27% have a bachelors degree (U.S. Census Bureau, 2004), and
many often lack the skills required to do certain jobs. Companies in general
prefer to avoid high-cost retraining, and would rather cut a division than retrain
it. The government simply cant afford to educate the entire U.S. population at
the current cost. As Thomas Friedman put it quite eloquently in his article Its a
401(k) World, the boundaries of what can be achieved while sitting on a couch
have been shattered online, one can learn, retrain, work, find a job or employee,
invent, invest and crowd-source. But only if you want to. The carrot is right there,
so to speak, but there is no stick for being on Facebook or 9gag or YouTube either.
There is only one absolute conclusion we can draw from the effects of
Globalisation that it has changed the way in which the world of business works.

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Siddhant Kothari

EGB Final Paper

Prof. Foudy

At any given time, it is very difficult to generalise and say that Globalisation has
had a net positive or negative effect on a worker. In todays economic climate,
with the greatest focus still on jobs, there is some anti-globalisation sentiment,
primarily due to the jobs being taken away as companies outsource production or
foreign competitors enter the U.S. market. However, empirical evidence suggests
that open economies practicing (relative) free trade tend to grow much faster
than closed economies. The two best examples of this are China and India, which
have both been growing at a consistently high rate since their economies opened
up to trade in 1979 and 1991, respectively, but were both economically weak
before trade began in earnest. Globalisation fosters international trade and
relations, cooperation and peace. Trade maximises efficiency in order to increase
the potential output of the world economy, thus benefiting everyone in the long
run, including the average American. International inter-dependence is one of
the biggest deterrents to war, and war is actually a common argument for
protectionism;

however,

increased

international

interdependence

means

countries will have to carefully consider all factors before declaring war, which
can also benefit the country. The effect of globalisation on the average American
worker today is probably fairly neutral, although the attitude towards

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Siddhant Kothari

EGB Final Paper

Prof. Foudy

globalisation is negative because the positive effects of exports are less tangibly
felt than losing ones job due to imports or outsourcing of jobs. In the long run,
assuming free markets, mobility of labour and other factors, ability to retrain for
another occupation easily, trade benefits everyone. Then again, as Keynes said,
In the long run, we are all dead.

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Siddhant Kothari

EGB Final Paper

Prof. Foudy

References
Bureau of Labour Statistics, (2015). Median age of the labor force, by sex, race
and ethnicity. [online] Bls.gov. Available at:
http://www.bls.gov/emp/ep_table_306.htm [Accessed 19 Aug. 2015].
Dill, K. (2015). The Auto Industry Jobs Of The Future (And Why They Sound
More 'Tech Startup' Than 'Carmaker'). [online] Forbes. Available at:
http://www.forbes.com/sites/kathryndill/2015/05/18/the-auto-industry-jobs-ofthe-future-and-why-they-sound-more-tech-startup-than-carmaker/ [Accessed
19 Aug. 2015].
Friedman, T. (2013). Its a 401(k) World. [online] Nytimes.com. Available at:
http://www.nytimes.com/2013/05/01/opinion/friedman-its-a-401k-world.html
[Accessed 19 Aug. 2015].
Investopedia, (2011). The 6 Most-Traded Currencies And Why They're So Popular.
[online] Investopedia. Available at:
http://www.investopedia.com/articles/forex/11/popular-currencies-and-whytheyre-traded.asp [Accessed 19 Aug. 2015].
Lexicon.ft.com, (n.d.). Globalisation Definition from Financial Times Lexicon.
[online] Available at: http://lexicon.ft.com/Term?term=globalisation [Accessed
18 Aug. 2015].
McDonald's India Delivery, (2015). Order Sides. [online] Available at:
http://www.mcdelivery.co.in/Categories/Sides [Accessed 18 Aug. 2015].
Mcdonalds, (n.d.). Full Menu :: McDonalds.com. [online] Available at:
http://www.mcdonalds.com/us/en/food/full_menu/full_menu_explorer.html
[Accessed 18 Aug. 2015].
Thuy Vo, L. (2012). What America Sells to the World. [online] NPR.org. Available
at: http://www.npr.org/sections/money/2012/03/14/148460268/what-americasells-to-the-world [Accessed 19 Aug. 2015].
U.S. Census Bureau, (2004). Educational Attainment in the United States.
[online] Census Bureau. Available at:
http://www.census.gov/prod/2004pubs/p20-550.pdf [Accessed 17 Aug. 2015].

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EGB Final Paper

Prof. Foudy

U.S. Census Bureau, (2014). U.S Census Bureau - Person Income 2013. [online]
Census.gov. Available at:
http://www.census.gov/hhes/www/cpstables/032014/perinc/pinc01_000.htm
[Accessed 19 Aug. 2015].
World Bank, (2015). Imports of goods and services (current US$) | Data | Graph.
[online] Available at:
http://data.worldbank.org/indicator/NE.IMP.GNFS.CD/countries/US?
display=graph [Accessed 19 Aug. 2015].
World Bank, (n.d.). Exports of goods and services (current US$) | Data | Table.
[online] Available at: http://data.worldbank.org/indicator/NE.EXP.GNFS.CD
[Accessed 19 Aug. 2015].

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