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The Colorado Revenue Limit: The Economic Effects of TABOR

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Abstract:

Between 2000 and 2003, annual manufacturing employment in the United States declined by almost 3 million jobs, and has been largely flat since then. The level of manufacturing employment in 2003 was 14.3 million, the lowest since 1950. In addition, the trade deficit in manufactured goods rose by $84 billion between 2000 and 2003 and it is currently on pace to grow by another $150 billion by the end of 2005 (for a total deficit increase of $234 billion in the 2000-05 period).

The relationship between trade deficits in manufactured goods and manufacturing employment seems obvious: imports decrease labor demand in manufacturing while exports spur this demand. A rising trade deficit means, all else equal, that labor demand in U.S. manufacturing is reduced.

The importance of the simple relationship between trade deficits and employment in manufacturing is occasionally challenged. Two such challenges have recently garnered some press attention. The first comes from Martin Baily and Robert Lawrence, a former chair and member, respectively, of the Clinton Administration's Council of Economic Advisors (CEA). They argue in a Brookings Institution Paper on Economic Activity that trade deficits had only a minimal impact on manufacturing employment between 2000 and 2003. Even more provocative, Baily and Lawrence argue that rising imports actually added to U.S. manufacturing employment during this period.