Winning Over Globalization’s Losers

On both sides of the Atlantic, many view economic globalization as a threat to below-average earners. According to a recent poll by the German Marshall Fund, majorities in France, Germany, and the United States favor maintaining existing trade barriers, even if doing so hampers economic growth. Clearly, the large net gains from global economic integration are not enough to convince those who have lost their jobs and the many others who feel at risk.

The recently established European Globalization Adjustment Fund (EGF) is an EU-wide response to this challenge. The EGF can spend up to €500 million annually in EU member states on workers affected by trade-induced layoffs. But sharing the benefits of globalization with the losers is traditionally regarded as a national responsibility. For example, the inspiration for the EGF, America’s Trade Adjustment Assistance, introduced by the Kennedy administration in 1962, is a purely national scheme. Is EU involvement really justified?

The economic case for a European globalization fund is that trade policy has been delegated to the European level, while Union members retain control rights to block decisions. Consider the hypothetical example of full trade liberalization in textiles, which would have greatly asymmetric effects between, say, Sweden, with hardly any textile industry, and Portugal, with a substantial one. Sweden would be a clear beneficiary while Portugal would be hit hard, owing to the large number of displaced textile workers.

The negative impact of such redundancies is serious. OECD statistics show that 40% to 50% of displaced manufacturing workers in the EU15 remain without a job 24 months after becoming unemployed. Around 30% work in a job that pays less than the previous one. Only around one-quarter are re-employed with a wage at or above the previous level (see chart).