If trade deficits have caused job loss for decades, millions of jobs on some counts, we should see a clear and sustained relationship between trade and unemployment. We don’t.
Right away, I can think of two reasons not to find a relationship.
1. As with many macroeconomic variables, there is causal density. Many factors affect the trade balance, and many factors affect unemployment. In standard international macro, anything that strengthens domestic demand will cause employment to rise along with the trade deficit.
2. Deviations from full employment are temporary (they last for several years, but not forever), at least according to many economic theories. In the long run, the primary effect of globalization should be on the wage rates of various workers, not on the employment rates. And indeed a recent paper by Ebenstein and others claims to find such effects
” In the long run, the primary effect of globalization should be on the wage rates of various workers, not on the employment rates.” But in societies that support the “right not to work” through various safety nets and income support programs, employment rates will go down (and may be not go back up). The objective should be to ensure that there are as few barriers to any form of job creation that finds willing matches.
I sometimes wonder if I am on a different planet. Are we not seeing low labor participation?