I teach my undergraduates that trade has no long-run effect on aggregate employment. I teach it because it’s right, and very few economists would disagree. Tyler Cowen’s recent postings on MR about the negative employment effects of trade have the potential to mislead. To the extent that trade and technology correlate with persistent disemployment in local areas, this is a reason to think that there are structural inefficiencies in the labor market. If these structural rigidities exist, then it can be hard for people who lose jobs to get new ones. Anything that disrupts existing employment patterns — trade, technology, macroeconomic changes like price shocks — will then associate with employment declines.
What are these structural inefficiencies? For market monetarists, the “zero lower bound” is a favorite. But we’re now five years out from the NGDP shock that plausibly caused the big increase in U.S. unemployment. The rise in the minimum wage, the extensions of unemployment insurance, the expansion of welfare programs like food stamps, and perhaps most importantly, housing lock-in due to the collapse of the real-estate bubble are all plausible candidates. But these structural rigidities deserve the real blame for disemployment, not trade and technology. Blaming trade and technology is a bit like blaming the weather. Labor markets will always be disrupted by something or other. Policy makers cannot insulate an economy from shocks. What they can do is gum up the works so that the economy cannot respond nimbly to these shocks.