A Numbers Argument for Renewing Trade Adjustment Assistance

Blog post on the Wall Street Journal's Washington Wire

June 23, 2015

Many oppose trade agreements on the grounds that they will lead some workers to lose their jobs. They are correct: More open trade will surely cause some displacement. And these losses could be costly for those who are displaced. A 2011 Brookings study , for example, found that an experienced worker who is displaced could lose 1.4 years of his or her lifetime income.

But a key question ignored by opponents of the Trans-Pacific Partnership (TPP) is whether such adjustment costs are outweighed by trade's benefits to consumers and workers who gain jobs in export industries. An authoritative 2012 study of TPP by Peter A. Petri and Michael G. Plummer estimated that by 2025 US national income would be raised by 0.4 percent of GDP, or about $80 billion. Their widely cited study also estimates the effects on US import growth that can be used to approximate the national costs of displacement. This calculation suggests that by 2025 the benefits per worker displaced would be $1.35 million. That is more than 10 times the costs of the income lost by each worker's displacement. Put another way, from the nation's standpoint, TPP is a good deal. Moreover, once the economy has adjusted, the benefit-cost ratio would rise over time as there would be no need for additional adjustment.

This calculation suggests that there is room for a deal, that those who gain can afford to offer benefits to those who lose. And that is precisely what the Trade Adjustment Assistance (TAA) program does by offering more generous benefits for training and adjustment to workers displaced by trade.

Some say that the program is flawed because it treats those who lose their jobs because of trade more generously than workers who lose their jobs for other reasons beyond their control. Some have said that, with the exception of a few older workers, the program provides aid and training only while workers are unemployed and fails to compensate those who find jobs at lower wages than they were previously earning. These objections suggest that an even better program would support all displaced workers, regardless of the reasons for their displacement and provide wage-loss insurance if these workers find new jobs at lower wages.

Nonetheless, given current political realities and budget constraints, such proposals are probably unrealistic. Renewing the existing TAA program at the same time the president is given trade promotion authority, however, is a way to at least offer some compensation to those displaced by trade.

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Robert Z. Lawrence Senior Research Staff

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