Armies of low-wage foreign workers haunt many Americans’ dreams. Can you protect your financial future? Might pressures from international trade even boost your income? Fortunately, the answer to both questions is "YES." Before outlining a possible plan of action, however, you need some background information.
Specialization and exchange improve standards of living everywhere. International competition is also a powerful force to equalize prices globally, both for goods and for resources. Some economists describe a law of one price; others invoke a factor price equalization theorem.
A stereo sold in Budapest must generate the same net revenue to a competitive producer (after transportation costs, taxes, etc.) as one sold in Quebec. International competition in certain labor markets also tends to equalize pay for, say, basketball players in Orlando and Rome (after adjusting for costs of living, regional preferences, etc.). But how does trade exert pressure to equalize wages for all comparable occupations in Barcelona, Melbourne, and San Diego?
One part of the answer is that, under fairly reasonable assumptions, free trade almost perfectly substitutes for resource mobility. A Russian computer programmer need not physically relocate to Moscow, Idaho to compete with Idaho programmers. Similarly, a French vintner can stay in Bordeaux while competing with California winemakers.
International trade intensifies pressures for firms everywhere to adopt similar technology. Microchip makers in Malaysia use the same basic technologies as firms in Silicon Valley, which ultimately translates into similar productivities for labor, and, consequently, similar wages.
A second form of international competition among workers arises from location decisions by multinational corporations. Consider a janitor in an Indiana plant that manufactures mirrors. If the company operating this plant could produce mirrors in Manila instead, then the Indiana janitor must compete for a job with a Filipino janitor. If the Indiana plant is relatively more costly, manufacturing will shift to the Philippines.
The third part of the answer is that workers compete with other workers within their national borders. If, say, bankers enjoy higher returns on their investments in human capital than lawyers do, then some Americans considering careers in law will switch to banking instead. These adjustments eventually will roughly equalize returns on comparable investments in human capital.
How does this analysis help answer the title question? Competitive forces combine to equalize wages, interest rates, and rents for comparable land throughout the world. This means that if the resources you control are relatively scarce internationally, then your share of the gains from international trade (the increased purchasing power of your income) will exceed the average. But if your resources are even more abundant internationally than within your own country (e.g., unskilled labor), then your gains from trade will be less than average.
A sad reality is that unskilled Americans gain less from international trade than those with more human capital do, both absolutely and relatively, because they must compete with abundant unskilled foreign workers. This may be the major reason why the share of earned income going to Americans at the bottom of the economic spectrum has declined in recent decades, while the share going to Americans toward the top of the spectrum has been rising.
One Strategy The world is full of bright industrious people. The trick is to tailor your resources so that they are relatively scarce in the rest of the world, even if relatively abundant in the United States. This usually entails acquisition of human capital. On average, Americans have better access to education than most people—although many foreigners are catching up quickly. Thus, the answer to our major question is almost a cliché: Get as much education as you can stand, and try to develop expertise that will be increasingly in demand as internationalization continues into the twenty-first century.