FIGURE 1.7 Import and export shares of output for computers and office products (standard industrial classification (SIC) 357).

Real earnings of different skill groups have been very different. Real earnings of more-skilled workers have been rising, but earnings of the middle- or less-skilled workers were flat or falling throughout the 1970s and the 1980s and into the 1990s. In the second half of the 1990s, there were increases across all parts of the skill distribution.

This increase in real wages since 1995 has been largely driven by global integration of the IT sector. Multilateral trade in the computer and office-products industry (standard industrial classification—SIC—357) was sizable and had a growing surplus with the rest of the world early in the time frame of Figure 1.7. Something started to change in the early 1980s in this industry. Exports continued to grow and imports exploded as a share of GDP. The trade balance in this industry then quickly went to zero and became dramatically negative, continuing this way into 2000. In that year, the industry had a trade deficit with the rest of the world of $30 billion.

However, the IT industries are special. Many studies have documented that in the second half of the 1990s, when there was growth in both productivity and in real income in the United States, they were driven by the IT industries such as computers and office products. These industries became much more productive and, as a result, prices went down substantially and firms and all their associated industries demanded a lot more capital in IT. Some of it was a bubble, but it is clear that these are special industries that overall have driven much of the productivity gains in U.S. real income.

The early personal computers in the 1980s, such as the Apple IIe, were not only produced in the United States, they were produced in one location, such as Silicon Valley. Now production is scattered all over the world. Today, a laptop has probably been made in 15 countries: all the components come from different parts of the world in elaborate global production networks that multinational firms have set up.

If in 1980 the United States had closed its borders and not allowed IT to globalize as it did, there probably would not have been the IT boom enjoyed in the 1990s. The IT industries would not have been able to deliver the productivity gains and price declines that they did.

To summarize, research by economists has concluded that in recent decades globalization appears to have been more beneficial for more-skilled workers in the United States than for less-skilled workers. It also seems that the boom time in real wages since 1995, driven largely by IT, has had a lot to do with globalization. These gains from global integration are widely distributed across skill groups.

Data from the U.S. Census Bureau indicate that the total U.S. labor force went from a little over 100 million in 1980 to about 140 million in 2000 (Figure 1.8). There will be much slower labor force growth between now and 2020 than in the previous generation. Annualized growth rate for the U.S. labor force was about 1.8 percent from 1980 to 2000. Going forward, it is going to be about 0.8 percent per year. These estimates assume that birth rates and death rates remain as expected. The estimates also take immigration into account; the only wild card in the estimates is what is going to be changing in U.S. immigration policy.

FIGURE 1.8 Projected U.S. labor force. SOURCE: U.S. Census Bureau.