During the past 50 years, U.S. trade negotiators have consistently tried to pry open global manufactured goods and services markets and to transform publicly regulated service sectors into contestable markets. Most analyses have focused on this strategy's effects on wages and work conditions in the target countries. Susan Hansen provides a detailed empirical consideration of what that strategy means back home at the level of U.S. states. The book's primary contribution is to link two research domains—state and local politics (SAL) and international political economy (IPE)—that are usually strictly segregated not only inside American political science departments but also across universities. Unfortunately, however, the author, a SAL specialist, neglects about a decade of helpful findings from the IPE literature.

Hansen argues that globalization has not caused a race to the bottom with respect to wages and work conditions, although low wages are connected to worsening social conditions. She constructs a composite measure of state labor costs based on wages, unemployment insurance benefits, worker's compensation, the level of unionization, and the presence of “right to work” legislation. She notes (p. 59) that this composite measure has “been heading downward since 1970.” But she argues that this has more to do with local political factors like Republican Party control over government than it has to do with globalization. Different chapters in the book consider the causes for differences among the states with respect to this metric, the social consequences of slow wage growth, and offer some policy suggestions for remedying slow wage growth and social problems.

The book is marred by a fundamental confusion between the absolute level of labor costs and their level relative to output. Businesses care about labor costs relative to workers' productivity, not wage levels per se. Very high wages matched by very high productivity in quantity and quality terms are not a burden on business and will not in and of themselves cause job losses. Similarly, very low wages are not inherently attractive to businesses if productivity and quality are too low to permit profitable production. But Hansen's composite measure captures neither the absolute level of wages nor relative unit labor costs (wages in relation to output). It is thus not a reliable indicator of the trends she is trying to capture.

This can be seen in the author's very first figure (p. 12), which compares labor wage cost trends in the United States and European Union via two indices. While it is true, as the figure shows, that U.S. wages have grown more slowly that EU wages, this does not logically imply, as Hansen says (p. 11), that “labor costs since 1970 have tended to be far lower in the United States than in most European countries.” Indeed, the opposite was and remains true: On either an absolute or purchasing power parity basis, manufacturing wages in the United States remain higher than in most EU countries, largely because productivity in U.S. manufacturing has grown faster than nearly all EU countries for the past 25 years. This is one major reason why the relative cost of U.S. labor has declined. But this does not mean that, strictly speaking, the United States is a low-wage economy in the same sense that China is a low-wage economy. Nor does it mean—as the inevitable terminological confusions might suggest—that average wages are falling in the United States even if “state labor costs” are falling.

Similarly, Hansen's major finding (p. 135) that states with a high composite state labor cost are also states marked by high levels of exports, high wages, and high employment is not surprising. Increased globalization—increased exposure to world markets—has increased pressures for specialization in the U.S. economy. Consequently, high-wage, high-quality, high-productivity sectors like aircraft and capital goods have benefited from the possibility of greater exports, while medium-wage (in a global context), low-productivity sectors like garment assembly have been displaced by import competition from truly low-wage producers in Asia and elsewhere. Globalization thus not only could but should have heterogeneous effects rather than homogenizing effects, should create more diversity rather than a race to the bottom. A sector- rather than state-specific analysis might have shown this more clearly, particularly since most manufacturing sectors are fairly geographically concentrated.

Hansen's policy prescriptions for wage stagnation and social ills focus largely on increasing human capital and sorting out the health care mess. In this respect, there is a clear connection between her core metric and the outcomes she examines. The core small business constituency of the federal Republican Party is hostile to action on both fronts. Can individual states offer solutions in the face of federal paralysis? The IPE literature suggests that even relatively small economic units have considerable latitude with respect to competitiveness-enhancing but socially responsible supply side policies. But the author's findings suggest that there will be a strong Matthew effect in which only states with strong unions (e.g., Massachusetts) or strong commitments to high-tech industry (e.g., California) can find their way to wage-enhancing health or human capital solutions.

Globalization and the Politics of Pay is laudable for its effort to connect issues in SAL and IPE. The use of aggregate figures for a diverse, continental scale economy like the United States often conceals more than it reveals. Hansen's effort to discern the degree of heterogeneity is helpful. Similarly, the comparison of that multisector economy with one-sector economies like, for example, Finland is an odd way, to say the least, to discovery policy-relevant information or causal patterns. Here, too, Hansen at least points in the right direction by trying to break the U.S. economy down into its component parts. But this book is only a very tentative first step toward a nuanced analysis of the consequences of globalization for local wages in the United States.