Although the election is all over but the shouting (of which there is more than normal), one question that seems to have outsized importance this election season is that of the fate of the industrial (white) working class. The election of Trump seems to have focused minds on this segment of the electorate, although Bernie Sanders and others on the left had been talking about this forgotten group for some time. The fact is that jobs have been being outsourced for a generation, rates of private sector unionization (something of specific concern to the left) have been steadily declining to the point of being almost microscopic, and working class wages have been stagnating for a generation or more. So what has been causing this economic decay that has been largely invisible to those outside of the major metropolitan areas where culture and public policy are produced?

The first cause that should be highlighted is increasing environmental regulation. At the time that the EPA was founded in 1970, it was responding to real environmental problems. Pollution was visible in the air in many places, rivers were catching fire, and even littering was something of a problem. However, as the EPA has expanded, the air has become cleaner, as have the rivers. The EPA has focused on less visible concerns such as ozone holes and global warming/climate change. However, the regulatory burden on the overall economy has steadily increased over time, along with compliance costs. As this happens, industrial firms have been offshoring production to countries with less stringent environmental compliance regulations. While some environmental regulation was and is still necessary, the steady increase over the last 45 years or so is one factor that has driven good factory jobs off shore.

The second cause is that the U.S. has been the indispensable player in the international system which has been in place since WWII. As part of this, the U.S. has been encouraging expanded trading relationships as a way of managing a peaceful world order. The idea is that if countries are fully integrated into the international trading system and have a stake in the continued existence of a stable trading system, then they are less likely to engage in warfare that would upend the system. During the Cold War, the U.S. used its influence and economic might to bind countries to it in order to oppose the Soviet Union and China. After the fall of the Soviet Union, the international trading system managed by the U.S. simply expanded to include many former Soviet Bloc countries. One part of the strategy is to lower trade barriers and create free (or freer) trade areas. The result of this is that a company could offshore its production to say, Mexico, and then reimport those goods back into the U.S. for a fraction of the cost. This increases employment in Mexico and makes it less likely to engage in activities that would result in its access to the U.S. markets getting closed off. The U.S. consumers would win too, as these products would show up in the stores at a lower price. However, the cost of these gains, as real as they are, has been the American industrial worker.

The third cause is automation. In the industrial sector, the ability to automate has meant that it takes fewer workers to produce the same amount of output than it did at earlier periods in history. This is called productivity and is what is responsible for higher standards of living in society. However, in economic theory this should be a good thing because the displaced workers will move into other, more labor-intensive sectors and produce even more goods (and services) making the citizens in the economy even better off. And in a perfectly free economy that might actually happen. But no economy is perfectly free, and the displaced industrial workers are not finding jobs that pay as well or better because they don’t exist. Consequently, you have many communities where the best days are in the past.

The fourth cause is declining unionization of the private sector workforce. With a significant fraction of the working population unionized, this raises the overall wages in the economy. However, this also raises the cost of doing business. With the U.S. opening up its markets over the last 2 generations, the competition faced by the American worker has increased. This leads to lower (i.e. stagnating) wage demands as the workers rightly fear that their jobs could be outsourced. In fact, it is not hard to see that the one area where unionization is still relatively strong is in government and utilities, two industries that don’t lend themselves to being easily outsourced.

Increased immigration (legal and illegal) has also had a negative impact on the industrial worker. While many immigration advocates have argued that illegal immigrants only take jobs that Americans won’t do, this is misleading. For one thing, anyone who remembers the real estate boom a decade ago won’t forget the crowds of migrant workers (of questionable legality) standing in Home Depot parking lots waiting for someone in the construction industry to show up an hire a few of them on the spot for a day. These fellows, as industrious as they may have been, were in competition with American workers for the same job. While it is hard to tell how many illegal aliens are currently working in the U.S., many are employed in industries in which there are also Americans working. These folks are increasing the competition for jobs faced by those at the lower end of the scale. In addition, they are also helping to hold down wages in those sectors, thereby contributed to stagnating American wages.

In short, the economic decline of industrial working class has been caused by a combination of factors over a long period of time. While new jobs that didn’t exist in 1970 have risen to take the place of ones that have disappeared, it is clear that one segment of the U.S. population is doing worse off than it was a generation ago. The fact that many Americans feel that their children will be worse off than they are is a pessimistic feeling uncharacteristic of the historical American experience. Because much of this decline has occurred outside of the major metro areas, it has largely gone unnoticed and unlamented by the cultural, economic, and policymaking elite of this country. In the last election, this class asserted itself in rather spectacular fashion. Until a policy mix is found to help reverse this decline, we can expect this demographic to continue to vocal in politics for some time to come.