The European Community 1992 Program and U.S. Workers

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The European Community 1992 program and U.S. workers

The European Community's plan to create, by 1992, a single market permitting the free flow of goods, capital, and people among member countries has caught the imagination and interest of many in the United States. Numerous studies and conferences have investigated the potential impact of this plan, called EC 1992, on U.S. companies. Little attention, however, has been given to how U.S. workers are likely to be affected. To help fill this gap, and to raise explicitly some issues of concern to U.S. workers, the Bureau of International Labor Affairs of the U.S. Department of Labor, in conjunction with the Center for Strategic and International Studies, cosponsored a roundtable conference in March 1990 on "EC 1992: Implications for U.S. Workers." This conference brought together leading experts from government, academia, business, and labor to discuss the topic of European economic, political, and social integration and its implications for U.S. workers. This report discusses the major themes that evolved during the conference. (1)

Overview

The conference opened with a review of the major areas of concern for U.S. workers resulting from the EC 1992 program. The importance and interdependence of the economic relationship between the European Community and the United States was emphasized. Each is the other's main trading partner and largest source of direct investments. U.S. exports to the European Community account for nearly a quarter of total U.S. exports and support nearly two million jobs in the United States. Besides internal economic effects, EC 1992 will have international strategic implications: a united Europe will be able to assume more financial and political responsibility in the operation of the global economic system.

The creation of a single market by the European Community is likely to alter the competitive position of firms in member countries relative to U.S. firms in markets throughout the world, but especially in Europe. Both the structure and the volume of U.S. exports and imports will be altered, with some U.S. workers facing job dislocations as a result, while others enjoy increased job opportunities. Estimations of the direction and magnitude of these changes are obviously important to U.S. workers.

Another area of concern is that EC 1992 will make Europe a more attractive place in which to invest, and this could displace some investment that would have been made in the United States. Since investment is a significant factor in determining longrun growth in productivity and living standards, a reduction in investment in U.S. plants and equipment could prove detrimental to U.S. workers.

Still another area of interest in EC 1992 is the proposed "Social Dimension," which, if enacted, could lead to a broader application of worker rights and labor standards across the continent. These changes could directly affect the competitiveness of European firms, but even more important is their potential for altering U.S. labor standards and benefits by the example they set. The discussion that took place at the conference attempted to ascertain the importance of each of the foregoing three themes.

Aggregate economic effects

In a paper prepared for the conference, Professors Richard Freeman and Lawrence Katz, of both Harvard University and the National Bureau of Economic Research, assessed the overall impact of EC 1992 on U.S. trade and employment. They found that, compared to the rapid "internationalization" of the U.S. economy in the 1970's and 1980's and the massive trade deficits of the 1980's, the impact of EC 1992 on U.S. trade flows and the U.S. labor market is likely to be only minor to moderate. Using estimates presented in the Cecchini Report (prepared for the Commission of the European Communities in 1988) that European Community imports initially would drop 8 to 10 percent as the result of increased intra-European trade, Freeman and Katz projected a similar reduction in U. …