Between 1979 and 1991, real hourly compensation (wages and fringe benefits) in the business sector of the U. S. economy grew by only 1.5 percent. Some observers argue that increasing international trade was to blame. They say the United States lost high-paying manufacturing jobs because we began to buy more imported manufactured goods. But new evidence shows that free trade did not cause slow growth in compensation.

The 1991 trade deficit in manufactured goods was $47 billion, compared to a 1981 trade surplus of $18 billion. But even if the 1991 trade balance had been at its 1981 level, and even if this had been achieved totally with manufactured exports, only an additional 0.85 percent of U. S. workers would have been employed in manufacturing and the average weekly wage would have been only 0.25 percent higher than it was.

There is a reason why trade has so little effect on U. S. wages:

• In 1990, 70 percent of America's manufacturing imports came from countries that are members of the Organization for Economic Cooperation and Development.

• Since wage rates in those countries are not much different from those in the United States, trade did not cause an export of jobs to low-wage countries.

Much of the stagnation in real wages in the United States is due to the relative decline in wages of production workers relative to wages of nonproduction workers. Some have attributed this to U. S. multinational companies shifting production from the United States to lower-wage developing countries. But this is not what happened.

• Between 1977 and 1989, U. S. multinational companies shed 1.7 million manufacturing jobs in the United States.

• The same companies added only 60,000 jobs, less than 4 percent of the number of jobs shed, at their affiliates in developing countries.

U. S. multinationals reduced their ratio of production to nonproduction workers both here and abroad - 15.7 percent in the United States and 13.6 percent elsewhere. - David R. Henderson.

Source: Robert Z. Lawrence, "Trade, Multinationals and Labor," Working Paper No. 4836, August 1994, National Bureau of Economic Research, 1050 Massachusetts Avenue, Cambridge, MA 02138, (617) 868-3900