The psychological price of globalization

A growth opportunity not to be missed? Or a threat to safety and wellbeing that should be avoided at all costs? Opinions have polarized in recent years around these two possible viewpoints, as the debate rages on about the effects of globalization, both at a collective and an individual level. Beyond a doubt, in the two decades prior to the Great Recession of 2007-2008, participation in the international market expanded to many developing countries, bringing about a higher standard of living for those populations. But at the same time, in the industrialized West hostility toward globalization was building up and spilling over in a new wave of nationalist and populist fervor.

But globalization is not the same for everyone. Trade integration at an international level leads to long-lasting distributional effects that vary widely depending on the industry and the worker population. One of the main factors is greater or less exposure to competition from international trade. In areas where there are many highly -exposed industries, we find a variety of consequences, and not all of them strictly profit-related: from an upturn in the local crime rate, to fewer marriages and lower fertility. What’s more, people’s overall health is suffering, a phenomenon linked to an escalation in suicides and substance abuse. This may be a sign of deteriorating mental health among the workers who are hit hardest by globalization.

We set out to study the impact of exposure to import competition on the mental health of workers.

Our research included 119 British workers from different industries, covering the years from 1995 to 2007: in other words, until just before the Great Recession of 2007-2008. In that period, the United Kingdom was experiencing impressive economic growth (+34% in the GDP per capita), a decline in unemployment (which dropped from 8.7% to 5.3%), as well as a sizeable upsurge in imports (+10%). But along with all these trends came a huge influx of Brits turning to public mental health services for help (+20% from 2003 to 2007, for a total of 8 million people who reported having mental distress at the end of the period in question).

Our data source is the British Household Panel Survey, a longitudinal study that began in 1991 and involved 10,000 individuals from all over Great Britain. Thanks to this survey, we can reconstruct the data showing the gradual evolution of mental health of workers in a variety of industries with more or less exposure to import competition.

The data show the unmistakably negative fallout of competition from imports. In fact, with respect to someone working in an industry at the 25th percentile of the import competition distribution, a worker in a more exposed industry, say the 75th percentile, on average shows a decline in mental health of 1.15 percentage points. From an economic standpoint, we can quantify this figure as a net loss of utility equaling about £270 for every individual. On a comprehensive level, exposure to import competition creates “collateral” economic impact associated with a decline in mental health which in 2007 totaled £5.2 billion in losses. This corresponds to 0.35% of the UK’s GDP, and 4.4% of the total public healthcare spending.

In contrast, other types of related shocks, such as the rise in exports and technological change, did not prove to have negative repercussions on the mental health of affected workers. In the first case, there was even a slight improvement, likely because rosier economic prospects would be opening up for workers in the industries in question.

The impact of exposure to import competition on workers’ mental health also extends to other spheres of life: heavier use of alcohol, drugs, and cigarettes; the likelihood of developing depression and anxiety; even the risk of mental distress becoming so severe that people might have suicidal thoughts.

Among the workers in industries exposed to international competition, the psychological impact is not the same across the board; it varies depending on several factors. In fact, effects are systematically stronger for workers who are young, who have temporary employment contracts, or recent hires, unskilled workers, or people in precarious financial situations or with large families. When a country is more exposed to international trade, inequalities are exacerbated, not only among workers across industries with more or less exposure to import competition, but also among different worker populations within the hardest hit industries.

The negative effects also extend to workers’ family members. More than anyone else, women with partners working in exposed industries report a sharp drop in satisfaction in their relationship with their partner. What’s more, when the father works in an exposed industry, investments in education for the children drop, as do their levels of self-esteem and satisfaction.

The mechanism that seems to underpin these dynamics is linked to the fact that workers in impacted industries face a greater risk of getting fired. This affects not only the people who would lose their job, but even those who don’t in terms of lower wage growth, less job satisfaction and an overall worsening of future economic prospects.

Beyond any doubt, at a collective level, globalization processes have uplifted levels of overall wellbeing. But globalization has also brought with it a wide range of distributional effects that we can’t afford to overlook if we want to fully understand the economic, social, and political dynamics set in motion when a country opens its economy international trade.

In industries with the greatest exposure to import competition, we find that mental health among workers deteriorates substantially, with ripple effects on their families as well. And the people who bear the brunt of the impact of trade exposure are the most fragile individuals.

At a policy level, it is essential that opening up the economy to international commerce go hand in hand with providing mental health services targeting the most exposed workers and their families. Moreover, governments must guarantee them the financial support they need.