substantially over the past 20 years. Income inequality has increased between production and non-production workers. Most economists believe that trade is responsible for at least 20-25 percent of this increasing gap between production and non-production workers' incomes. Thus, there is a significant question in the minds of production workers, who constitute the bulk of the work force and the electorate, as to the benefits of globalization. This is the reason for the growing public opposition to globalization, as expressed in the fast-track debate last fall and current debate over the International Monetary Fund (IMF).

New Developments

Dr. Scott pointed out that it is also important to look at how the Asian crisis will affect the economics and the politics of aerospace industry. There is some analysis that suggests that the U.S. trade deficit will grow from $200 billion today to $300 billion within the next 18-24 months. Dr. Scott's preliminary analysis is that this $100 billion increase in the trade deficit will result in the loss of approximately 1 million jobs, mainly concentrated in manufacturing. The total unemployment may not rise if the Federal Reserve lowers interest rates, but massive sectoral shifts in employment could still occur. The transportation sector, for example, is likely to lose 5-6 percent of current employment. The result will be a very different political environment. Already there has been a large number of cancellations of commercial aircraft orders. This will create something of a crisis within the aerospace industry, which may present an opportunity for some of the changes talked about during this symposium.

Employment Impacts

Turning specifically to the employment impacts of offsets, Dr. Scott pointed out that employment in aerospace peaked in 1989, as shown in Table 1 of his paper. Since that time employment has dropped from approximately 1.3 million workers to a low in 1995 of about 780,000 workers, before recovering in the past few years. Employment in civil aircraft followed the same general trend. The paper dissects that employment decline into three causes:

  • a decline in sales, dominated by the declines in defense, but also in the commercial sector, which is responsible for approximately one-half of the job loss;
  • outsourcing, meaning increasing imports of parts and components, which accounts for 6-10 percent of the job loss; and
  • rapid productivity growth, which accounts for the remainder of the job loss.

Thus, Dr. Scott agrees with the earlier analysis by Dr. Mowery that in the past offsets played a relatively small role in explaining the decline in employment.

However, the coming two decades will see a sharply different environment. Defense spending is going to be, at best, constant. The commercial sector will



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