One brutal chart from the biggest hedge fund in the world explains everything

Working class people from the Rust Belt played a large part in getting Donald Trump elected earlier this week. These same types of people also played a role in voting the UK out of the European Union earlier this year.

Trump's campaign targeted people in once-booming manufacturing towns who felt the punch of globalization as jobs moved overseas. The Brexit campaign had similar success on the areas of Britain that hadn't shared in the prosperity of the UK capital, London. 

This chart from $150 billion Bridgewater Associates, the world's biggest hedge fund, shows just how hard people across the US and Europe have been hit by globalization, and the loss of jobs to other countries and to technology. 

Bridgewater client note

The graph is based on data from MIT economist David Autor and shows how much middle-skill jobs, which generally require some education after high school like community college classes, have declined in the past 26 years. And it really explains an awful lot.

"What this election highlighted more than anything is that there are lot of people in this country who, regardless of their political leanings, are hurting," Jeffrey Solomon, CEO of Cowen and Company, said in a note. "Many who feel like their voices haven’t been heard for a long time." 

Autor defines middle-skill jobs as white collar clerical, administrative, and sales occupations, and blue collar production, craft and operative occupations. 

In an April 2010 research document, Autor said: "The decline in middle-skill jobs has been detrimental to the earnings and labor force participation rates of workers without a four-year college education, and differentially so for males, who are increasingly concentrated in lowpaying service occupations."

Which populations tended to vote for Trump? White men, typically over 45, typically without a college degree, who believe the economy is in bad shape and that the effect of foreign trade is to take jobs away from America.

In the UK, it is a similar story. Brexit voters were typically 45 and over and didn't stay in education beyond high school. In other words, the individuals who, in years gone by, may have taken up an apprenticeship, and found their way into a middle-skill, technical role, but have been replaced in recent years by overseas labor or robots. 

That's not to say that these individuals haven't benefitted from globalization. Bridgewater estimates that the developed world has seen a 0.3% boost to annual growth, which over 40 years adds up to incomes that are on average 12% higher. 

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"Yes, these workers have benefited from cheaper goods, but the negatives, including job losses and stagnant incomes, are more directly visible and easily attributable to global competition," Bridgewater's Jason Rotenberg and Jeff Amato wrote in a Friday client note that was viewed by Business Insider.

The benefits of globalization are indeed harder to feel. Smartphones may be cheaper than they otherwise would be, for instance, but that's little consolation to someone who can't rely on the same line of work as his father.

Here is what Wall Street dealmaker Ken Moelis told Business Insider's Matt Turner recently:

"Turner: It feels like there is a group of people that has benefited from globalization, and a group of people who feel like they haven't. Those two worlds seem to be colliding.

Moelis: Let me say this: There is a perception that that group has not benefitted. As I said, without going too deep, without globalization I am not sure everyone would be able to have a supercomputer in their pocket at the low cost.

Moelis: But that is hard to understand, so there are some very difficult things to understand that globalization is providing, that people really think are just here but really are a function of some of that. There are some very difficult arguments.

Turner: Right. Real wages haven't increased, but if things are getting cheaper and you're able to now afford a supercomputer in your pocket with that wage that hasn't increased in five years, it is difficult to pick that out.

Moelis: If you can watch the ball game on the bus, when you used to miss it ... and by the way, I think that life expectancy over the last 10 years has increased dramatically. You're living longer.

You ever go out to a restaurant now? You can get quality food — you can go out and get the best food that was available 20 years ago. They'll put it on a plate, you'll sit in a plastic chair because nobody values the chair, the white tablecloth, the maître d', but they'll put on your plate some great food for what used to be available at Applebee's prices. There are some really nice things going on, some external values being delivered to people. It's a story that is hard to tell."

The disconnect is also a story of growing income inequality. While the richest 5% of US households have seen incomes rise by 50% since 1990, incomes have barely grown for 80% of the population, Bridgwater notes below.

Bridgewater client note

Bridgewater's external PR firm Prosek Partners didn't immediately respond to requests for comment.

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