Trade Adjustment Assistance: Misaimed and with Limited Effect

I admit to a bias against Trade Adjustment Assistance, because I fear that it plays to an untrue but common stereotype that if only the U.S. economy didn't have to deal with imports, workers would be far more secure. In reality, many factors across the vast U.S. market can cause some workers to lose their jobs: tough domestic competitors, a firm that doesn't keep up with shifts of production processes, shifts in popular tastes for goods and services, poor management decisions, and others. I've never seen a serious argument that most of the workers who lose their jobs in the continual churn of the U.S. labor market do so because of import competition. In my mind, the entire category of unemployed workers--especially in the Long Slump following the Great Recession--can use greater assistance from active labor market policies in moving to new jobs. I don't see why such assistance should be limited to those who can get the U.S. Department of Labor to certify their claim that their jobs were lost specifically  because of import competition

Trade Adjustment Assistance began with the Trade Expansion Act of 1962, although no one was actually ruled eligible for benefits for the first seven years. It has been repeatedly updated and amended over time, especially in recessions and at times when new trade agreements are being discussed, including in 2002, 2009, and again in 2011. It's not a large program. In 2011, TAA included a total of 196,000 participants, about half of whom participated in training programs. The U.S. Department of Labor page describing what kinds of services are provided is here. It's a mixed bag of job search assistance, support for retraining, support for costs of relocation, assistance in paying for transitional health insurance while out of work, and wage subsidies for older workers who end up taking another job at a much reduced wage. The key goal is to help dislocated workers find new jobs.
Training and cash benefits under the TAA will be $826 million in 2012, according to the Congressional Budget Office baseline forecast.

Although I'm not a fan of how Trade Adjustment Assistance is focused on such a limited group, it does offer a testing ground for how these sorts of policies might work. However, results do need to be interpreted with care. Those who are ruled eligible for this program are not a cross-section of American workers across all industries: tend to be heavily in manufacturing jobs, like steel or textiles or autos, where it is more straightforward to make the argument under the law that their jobs were lost due to foreign competition. But these workers also tend to be older and to have lower education levels compared either with other displaced workers in the U.S. economy or with the U.S. workforce as a whole. They may also be more likely to be in communities that depended on a big manufacturing plant, and that have a limited number of alternative job options. For evidence on these points, a useful starting point is "Does Trade Adjustment Assistance Make a Difference?" by Kara M. Reynolds and John S. Palatucci, in the January 2012 issue of Contemporary Economic Policy. For an earlier look at the subject,Katherine Baicker and M. Marit Rehavi wrote on "Policy Watch: Trade Adjustment Assistance," for the Spring 2004 issue of my own Journal of Economic Perspectives. 

The Reynolds and Palatucci paper looks at the 150,000 beneficiaries of Trade Adjustment Assistance in 2007, who on average received benefits worth $5,700 from TAA. They compare "dislocated" workers who lost their jobs and were eligible for TAA benefits to other dislocated workers. Here are their two main findings:

"Unfortunately, we find no statistical evidence that the TAA program improves the average employment outcome of beneficiaries over a comparison group of nonbeneficiary displaced workers with characteristics similar to those workers in the TAA program. Our results imply that while the TAA program may provide an income safety net, it does not help the average displaced worker who is enrolled in the program find new, well-paying employment opportunities. ...

"Upon further examination, however, we find strong evidence that those workers who participate in a TAA-funded training opportunity are more likely to obtain reemployment, and at higher wages, when compared to the TAA beneficiaries who do not participate in training. Specifically, participating in the training component of the TAA program increases the likelihood that the average TAA beneficiary will find new employment by 10–12 percentage points, and reduces the earnings losses of the average worker by 8–10 percentage points, when compared to a group of similar TAA beneficiaries who do not participate in the training component. Although the income support, job and relocation payments, and other TAA benefits may not help workers find new, well-paying
employment, training seems to improve employment outcomes for these workers."

Again, it could be hazardous to generalize too broadly from these findings, because those eligible for assistance under the Trade Adjustment Act are not a randomly selected group. For example, it may be that this group is less well-situated to take advantage of job search and placement assistance, and but better-situated to benefit from training. But with the unemployment rate above 8% since February 2009, and the Congressional Budget Office forecasting that it won't drop much before 2014, there should be a heightened urgency in figuring out how to help the unemployed find job slots.