Introduction

In a recent essay on the future of the Bretton Woods system, Peter Kenen and his coauthor Barry Eichengreen note that “the ability of governments to manage change internationally depends importantly on their ability to manage it domestically,” especially as regards income distribution and the structure of the economy. They assert, furthermore, that throughout the industrialized world this ability to manage has fallen increasingly short since 1973, as virtually all these countries have been confronted with slower real growth, an increase in both the pace of structural change and the amplitude of business cycles, and intensified global competition (Kenen and Eichengreen 1994: 53–4).

The focus of this essay is on one particularly salient aspect of the link noted by Kenen and Eichengreen, namely, the responses of domestic labor markets to the challenges that have confronted the industrialized nations since the 1973 watershed and their feedback to trade pressures and policies. These responses are particularly crucial to the functioning of the international economy for two reasons. First, because the politics of trade and trade policy tend almost everywhere to focus heavily on the labor-market or “jobs” impact of such policies, and this focus has, if anything, intensified in the face of the increasing “footlooseness” of the other major factors of production: capital and technology. And second, because the reverberations in labor markets from post-1973 developments have been disquieting. They have included a near-universal (among industrialized countries) slowdown or stagnation in the growth of real incomes.