Academic journal article Contemporary Economic Policy

Does Trade Adjustment Assistance Help Trade-Displaced Workers?

Academic journal article Contemporary Economic Policy

Does Trade Adjustment Assistance Help Trade-Displaced Workers?

Article excerpt

LEAH E. MARCAL [*]

The federal Trade Adjustment Assistance (TAA) program was designed to aid workers who have lost their jobs because of increased import competition. Linear earnings functions provide little evidence that the TAA program increases the subsequent wages of its participants over comparable unemployment insurance (UI) exhaustees. However, adjusting for time spent training, TAA trainees were employed more than comparable nontrainees. (JEL J68)

I. INTRODUCTION

The Trade Adjustment Assistance (TAA) program is designed to facilitate the labor market adjustment of workers who have lost their jobs because of increased import competition. This 39-year-old program currently serves around 40,000 workers a year at an annual cost of $300 million. The majority of workers served by the program have been permanently separated from long-term employers in declining manufacturing industries due to plant closures.

Thus, workers addressed by TAA are likely to experience large adjustment costs, which include lost wages while unemployed and the subsequent fall in wages on the new job. Lower reemployment wages may reflect the loss of specific skills, union rents, or reduced employment opportunities in the local economy.

To find employment in a growing industry or occupation, the worker may need to acquire new skills, undergo a lengthy job search, or relocate. TAA seeks to lessen the cost of adjustment to a new occupation by funding training and providing workers with extended unemployment benefits while they retrain or search for a new job. Relocation allowances are also available to workers who secure employment outside their commuting area. These services are intended to increase the reemployment earnings of TAA participants.

Mathematica Policy Research, Inc. conducted the most recent and comprehensive evaluation of the TAA program in April 1993 for the U.S. Department of Labor. [1] Mathematica indicated that TAA participants were employed less and experienced greater earnings losses during the first 36 months after their initial unemployment insurance claim than comparable workers whose unemployment insurance (UI) benefits were exhausted. This article utilizes the data gathered by Mathematica and extends their analysis of wage and employment outcomes in three important respects: (1) controls are included for the conditions in the prelayoff industries and occupations of the workers; (2) a selection correction technique is performed for TAA participants versus UI exhaustees; and (3) reemployment probabilities are adjusted for any time spent in training over a 36-month period.

These improvements confirm the wage findings of Mathematica but challenge their employment findings. TAA participants, especially the trainees, experienced greater earnings losses than comparable UI exhaustees. This largely reflects the tendency of TAA participants to enter new firms, industries, and occupations, where they may lose seniority, union coverage, and knowledge specific to the prelayoff job. The earnings of TAA participants and UI exhaustees are similar after controlling for the frequency of firm, industry, and occupation switching. Corrections for the self-selection of participants into the TAA program weaken but do not reverse these findings. However, TAA trainees were employed more on average than comparable UT exhaustees, after an adjustment for time spent training. Although, the TAA program does not seem to improve the earnings of its participants, it does help them secure jobs.

The impact of the TAA program on post-layoff employment and earnings has important political considerations. TAA has often been viewed as a coalition builder for further trade liberalization (Aho and Bayard, 1984). Under this program, instead of obtaining protection from imports, workers receive adjustment services to help them enter new industries. TAA mitigates the concern that trade-displaced workers are unable to return to suitable employment. …

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