ben s bernanke : trade and jobs remarks by mr ben s bernanke, member of the board of governors of the us federal reserve system, at the distinguished speaker series, fuqua school of business, duke university, durham, 30 march 2004. the references for the speech can be found on the board of governors of the federal reserve system ’ s website. * * * economists are often accused of not being able to agree on anything. although we are indeed a contentious bunch, one proposition commands almost unanimous assent within the economics community. that proposition is that free trade among nations promotes economic prosperity. the economist ’ s argument for free trade is disarmingly simple. 1 trade is beneficial because it facilitates the division of labor, allowing each person to specialize in the type of production at which he or she is relatively most efficient. at the most basic level, a world in which each person produced everything that he or she consumed would be primitive indeed, as no single person or family in isolation could produce more than a few rudimentary goods and services. in contrast, if each person concentrates on just a few activities, economies of scale and the development of specialized skills allow production to become much more efficient. thus, if each of us focuses our efforts on just a few types of production and then trades our output with others, we can enjoy a far more varied and abundant supply of goods and services than we could if each person remained an isolated economic unit. 2 moreover, specialization tends to encourage innovation and hence promotes dynamism and growth as well as efficiency. what applies to individuals would seem to apply to nations as well. two centuries ago the economist david ricardo famously observed that, if england specializes in making cloth while portugal specializes in producing wine, international trade allows both countries to enjoy more of both goods than would be possible if each country produced only for domestic consumption and did not trade. a telling confirmation of ricardo ’ s insight is that, when nations go to war, the first order of business is often for each combatant to try to block the other ’ s access to trade. the union won the civil war in large part because its blockade of southern ports prevented the confederacy from exporting its cotton, and the outcomes of both world war i and world war ii turned on the fact that great britain and its allies were able to disrupt german trade more successfully than germany ’ s submarines could impede the flow of goods into and out of great britain. despite what seems to economists to

run, short - run cyclical influences, such as transitory changes in spending or productivity, may cause employment to deviate from its long - run sustainable level. even in the short run, however, there is no discernable link between aggregate employment and changes in trade volumes or the trade balance. for example, over the past two decades, even as u. s. trade has expanded rapidly, the quarter - to - quarter volatility of both output and employment has decreased noticeably, and recessions have become less frequent and milder than in earlier decades ( bernanke, 2004 ). in recent years, the sharpest deterioration in the u. s. trade balance occurred between 1997 and 2000, a time during which domestic employment was growing at a rapid pace. my focus thus far on the net effect of trade on jobs ignores the fact that those who lose jobs for trade - related reasons are not necessarily the same people who get the new jobs created by trade. trade, like other factors resulting in structural change, can have noticeable effects on the mix of jobs across industries, skill levels, and locations. those who lose jobs, whatever the cause of the dislocation, have real reason to be unhappy, because job loss often entails economic hardship - a point that i will shortly discuss in more detail. however, in our dynamic economy, jobs are created and destroyed in great numbers all the time. how important are trade - related factors in this ongoing process of job creation and destruction? to address the key area of public concern, i will focus here on the job - loss side of the equation. estimates of the gross number of job losses associated with increased import penetration vary widely, but one representative calculation, by lori kletzer ( 2001 ), put the gross job loss due to imports at nearly 310, 000 per year for the period from 1979 to 1999. i stress that kletzer ’ s estimate of gross job loss ignores any jobs created by trade, either directly or indirectly. the amount of “ churn ” in the u. s. labor market is enormous, a reflection of the continuous stream of entry, exit, and resizing of firms in our ever - changing economy. in order to get some perspective on kletzer ’ s estimate of trade - induced job loss, then, we should compare it to the number of workers who are displaced each year in the united states for all reasons, including firm or plant closings, corporate restructuring, automation, or