The post-World War II period has brought rapid economic globalization, which
has dramatically increased the importance of labor productivity and of policies,
such as right-to-work, that affect it. Advances in information technology,
greater capital mobility, and lower barriers to entry for business startups are
making it increasingly difficult for businesses to pass higher costs on to
suppliers and customers. The net effect is increasing pressure for firms to seek
geographical regions with lower cost structures and higher rates of labor
Between 1948 and 1994, seven tariff reduction rounds significantly liberalized world trade among the developed nations. The United States currently has zero tariffs on one-third of all imports, while the Most-Favored-Nation (MFN) tariff rate has declined to approximately 4.6 percent.
This trade liberalization has produced increasing import and export penetration as a share of the U.S. Gross Domestic Product (GDP). Between 1970 and 2000, the U.S. export share of GDP almost tripled (4.4 percent to 12.3 percent) while the U.S. import share of the economy more than doubled (6.2 percent to 16.6 percent) (see Chart 2). Interestingly, the 1990s witnessed the greatest percentage increase in trade penetration, with both export and import shares rising markedly. This fact will prove interesting throughout the analysis presented in section VI.
Before the forces of globalization opened the relatively insular U.S. economy to increased trade, U.S. manufacturers were enjoying near monopolistic market conditions in the United States. The U.S. auto industry, for example, enjoyed a 90 percent domestic market share in 1960.
These benign market conditions for U.S. manufacturers in the early post-World
War II period allowed them to pass on higher costs to consumers without a
significant loss in market share. These conditions also permitted organized
labor to thrive, swelling its ranks to one-third of the American workforce by
Union membership now hovers around 9 percent of the private sector workforce. Despite organized labor's persistent influence in the national and local political arena, the forces of globalization continue to shrink its ranks. There is every reason to believe that these forces will only intensify in the future as barriers to international trade continue to fall and as relative business costs play a greater role in regional economic performance. Advances in information technology, greater capital mobility and lower barriers to entry for business startups are making it increasingly difficult for businesses to pass on higher costs to suppliers and customers. The net effect is increasing pressure for firms to seek geographic regions with lower cost structures and higher rates of labor productivity.