Trade Adjustment Assistance Program Research Articles

Electoral Rewards and Punishments for Trade Compensation

abstract: When globalization harms a community, voters are expected to demand compensation programs. Why, then, would incumbents fail to provide additional compensation following an economic shock? The authors argue that in addition to offering material assistance, government compensation also informs voters about the costs of globalization, generating consternation in the electorate. As a result, providing compensation can hurt incumbents' electoral prospects. This article studies this consternation effect in the United States during the China shock period (1990–2007). The authors use an administrative instrument for access to the US Trade Adjustment Assistance (taa) program, the longest-standing compensation system for workers displaced by international trade. The analysis shows that compensation electorally backfires when distributed to low-shocked regions in which the informational value of compensation is high. The consternation effect can explain why governments often underinvest in compensation programs.

Local labor market effects of offshoring: Evidence from the US Trade Adjustment Assistance program

AbstractWe explore the wage effects of offshoring‐induced employment shocks in US commuting zones (CZs) and industries. Using data on petitions for the Trade Adjustment Assistance (TAA), we measure such shocks by computing the share of TAA‐certified offshoring‐induced layoffs out of total employment. We further identify material‐offshoring shocks and service‐offshoring shocks and connect the TAA data to individual‐level worker data from the American Community Survey. Empirical results show statistically significant and negative wage effects of the CZ‐level offshoring shocks, especially for service offshoring. On the contrary, we find positive wage effects of industry‐level offshoring shocks in industries exposed to both types of offshoring. Furthermore, we show that offshoring is associated with the widening gender wage gap in local labor markets and that workers in production and highly‐offshorable occupations are more vulnerable to the CZ‐level offshoring shocks.

Free Trade: A Policy Reformation


 
 
 
 
 
 This article proposes a solution to the challenges posed by free trade on domestic industries, particularly in the United States' manufacturing sector. The solution involves implementing a progressive tax system to tax corporations benefiting from free trade more heavily and utilizing the additional revenue to enhance Trade Adjustment Assistance (TAA) programs. The TAA programs will offer resources and training to displaced workers, facilitating their transition to other industries and increasing reemployment rates and wage replacement. Despite potential drawbacks, such as resistance from high-earning individuals and implementation costs, the overall benefits of the proposed TAA expansion outweigh the negatives. The article emphasizes the policy's alignment with Rawls' theory of justice as fairness and suggests that it is politically feasible and likely to gain international support due to its commitment to trade liberalization. The proposed approach aims to strike a balance between promoting free trade and protecting worker welfare.
 
 
 
 
 
 
 
 

Wage Insurance and Labor Market Trajectories

Wage insurance provides income support to displaced workers who find reemployment at a lower wage. We study the effects of the wage insurance provisions of the US Trade Adjustment Assistance (TAA) program using administrative data from the state of Virginia. The program includes an age-based eligibility cutoff, allowing us to compare earnings and employment trajectories for workers whose ages at the time of displacement make them eligible or ineligible for the program. Our findings suggest that wage insurance eligibility increases short-run employment probabilities and that wage insurance and TAA training may yield similar long-run effects on employment and earnings.

Policy and politics: Trade adjustment assistance in the crossfire

AbstractAt a time when trade and globalization are subject to extremely polarized political debates, we study the interplay between politics and the certification outcome of trade adjustment assistance (TAA), a US national policy meant to buffer the domestic labour market from adverse effects of increased international trade. To this end, we capitalize on the unique design, implementation and detailed data collection efforts of the US TAA program. We employ a rich multi‐dimensional data set to quantify the effects of political influence on the TAA certification process, controlling for a variety of fixed effects, in particular at the industry level. We find that political factors such as party affiliation of the president, congressional voting outcomes at the state and district levels and whether a petition was filed in a presidential election year influence the TAA certification probability as well as the decision time.

Trade Layoffs and Hate in the United States

ObjectiveRecent events (e.g., Brexit) have highlighted how globalization may foster hostility toward out‐groups in developed democracies. Is trade competition systematically related to hate in the United States?MethodsI conduct a county‐level statistical analysis using data from the Trade Adjustment Assistance program, the FBI's Hate Crime Statistics database, and the Southern Poverty Law Center's hate group map over the period of 2003–2017.ResultsCounties with more trade‐related layoffs tend to have more hate groups, though not hate crimes, even after accounting for changes in unemployment rates. The relationship between trade layoffs and hate groups is strongest in counties that have recently experienced larger decreases in the share of the white population.ConclusionsAlthough existing studies on diffuse economic vulnerability and hate find a weak connection between economic factors and hate, trade layoffs can explain some variation in local hate group activity.

Skill Overshooting in Job Training With the Trade Adjustment Assistance Program

The authors investigate the training choices made by workers entering the Trade Adjustment Assistance program and their postexit outcomes. This is important as more workers enter these types of programs due to technological change and globalization. Their study shows that workers that choose a training occupation beyond their skill level (skill overshooting) achieve higher earnings ($615 annually) and wage replacement rates (2.0 percentage points) at the cost of lower reemployment rates (−1.9 percentage points) immediately following program exit. An investigation of subsamples shows that skill overshooting is especially beneficial to females and those living in rural areas with earnings gains of $1,443 and $1,080, respectively, without hurting their chances of reemployment.

The Politics of Trade Adjustment Versus Trade Protection

The United States’ Trade Adjustment Assistance (TAA) program seeks to help workers transition away from jobs lost to import competition. By contrast, trade remedies like antidumping seek to directly reduce the effect of competition at the border. Though they have very different economic effects, we show that trade adjustment and protectionism act as substitutes. Using the first geo-coded measure of US trade protectionist demands, we show that controlling for trade shocks, counties with a history of successful TAA petitions see fewer calls for trade protection. This effect holds when we confine our analysis to the steel industry, a heavy user of antidumping duties. And though they are both means of addressing import exposure, the two policy options have distinct political effects: in particular, successful TAA petitions carry a significant electoral benefit for Democratic candidates. Greater recognition of the substitutability of trade compensation and protectionism would improve governments’ response to import exposure.

환율과 경상수지의 구조적 변화와 정책방향 (Structural Factors Behind Foreign Exchange Rate and Current Account Balances and Policy Directions)

환율과 경상수지의 구조적 변화와 정책방향 (Structural Factors Behind Foreign Exchange Rate and Current Account Balances and Policy Directions)

The Politics of Trade Adjustment vs. Trade Protection

When the United States' Trade Adjustment Assistance program was originally created, it was seen as a substitute for protectionism: a means of offering relief to workers without increasing economic distortion. Over the next 30 years, this view was abandoned, as trade compensation progressively became a partisan issue. Yet we show that trade adjustment and protectionism continue to act as substitutes. Using the first geo-coded measure of US trade protectionist demands, we show that controlling for trade shocks, counties with a history of successful TAA petitions see fewer calls for trade protection. This effect holds when we confine our analysis to the steel industry, a heavy user of anti-dumping duties. And though they are both means of addressing import exposure, the two policy options have distinct political effects: in particular, successful TAA petitions carry a significant electoral benefit for Democratic candidates. Greater recognition of the substitutability of trade compensation and protectionism would improve governments’ response to import exposure.

Producer group participation in the trade adjustment assistance program for farmers before and after the American Recovery and Reinvestment Act of 2009

The Trade Adjustment Assistance for Farmers (TAAF) program was established in 2002 to help farmers adversely affected by surges in imports. The program has been underused by farmers and, as a result, the American Recovery and Reinvestment Act (ARRA) of 2009 redesigned the program by loosening the eligibility criteria and changing the structure of the cash assistance. This study examines the factors that incentivize producer groups to file petitions for the TAAF program and whether there exists a cross-program relationship between the TAAF and non-TAAF farm safety net programs in periods before and after the ARRA revisions. We find that, after the ARRA, participation in the program has more than doubled, but it is uncertain whether this increase in participation is a direct consequence of the ARRA revisions. In fact, results indicate that time-invariant characteristics of commodity groups are the most important factors of TAAF participation. We also find some evidence that incentives to mitigate negative price risk drove petitioning activities for the TAAF program before the ARRA. This is further confirmed by a cross-program analysis in which TAAF petitions increase when cash receipts decrease from the non-TAAF farm safety net programs that offer risk management schemes similar to that of the TAAF. After the ARRA, such a cross-program relationship is no longer observed. Indeed, the TAAF program after the ARRA subsidized producer training and business planning in response to import competition rather than simply providing a form of price insurance. This new focus might have substantially changed the drivers of participation.

Trade, Redistribution, and the Imperial Presidency

In this essay, prepared for a symposium on International Trade in the Trump Era, I argue that one reason for President Trump's massive deployment of tariff authority is that the president, like any political officeholder, is beholden to those who put him in office — and who can keep him there. During his successful 2016 campaign, President Trump promised to help those regions of the United States that have lost significant manufacturing jobs, a trend that President Trump linked to trade agreements that have allowed cheap imports to supplant goods made in the United States. Since taking office, he has used the powers available to him to try to make good on his promises. In principle, the government has a wide range of policy instruments at its disposal to help those regions. An expansion of the Trade Adjustment Assistance program, which provides financial assistance to workers, farmers, and firms who have suffered due to trade liberalization, would help President Trump’s target constituency. Similarly, federal subsidies to help new industries, increased federal investment in primary research and infrastructure, and tax credits for businesses that relocate to economically ravaged regions would all help bring jobs back to the heartland. Such programs, however, require action — either to appropriate funds or to change existing law, like the tax code — by a Congress that is remarkably slow to act these days. Thus, like many presidential administrations before it, the Trump administration has searched for policies that advance its goals and that it can implement without Congress. The tariff power is an obvious candidate: Congress, as it turns out, has delegated almost total control over tariff rates to the president. The fact that the president has turned to tariffs to effect redistribution should hardly come as a shock. Tariff reductions since the Second World War have created an enormous amount of wealth globally, but they have also had huge distributional impacts that have gone largely unaddressed. During that time, a bipartisan political consensus emerged that trade policy should maximize wealth, while distributional issues should be dealt with domestically. But Congress, a deliberative body facing substantial impediments to action, has declined to take forceful steps to address the distributional issues exacerbated by trade liberalization. The president, on the other hand, has substantial delegated authority over international trade policy and faces few obstacles to decisive action. It was only a matter of time before the country elected a president who would want to redistribute to the losers from trade and who would rely on his international trade authority to do so.

Comment on “The Future of East Asia’s Trade: A Call for Better Globalization”

Comment on “The Future of East Asia’s Trade: A Call for Better Globalization”

Trade-induced displacements and local labor market adjustments in the U.S.

Administrative data from the U.S. Trade Adjustment Assistance (TAA) program reveal that, across locations, one extra TAA trade-displaced worker is associated with the overall employment falling by about two workers amidst muted geographic mobility. This correlation is robust to local import penetration proxies and is corroborated using differences in the exposure of commuting zones to the plausibly exogenous normalization of U.S. trade relations with China in 2000. A Ricardian trade model with endogenous variable markups arising from head-to-head foreign competition can rationalize such a correlation. Following a trade liberalization shock, employment and earnings collapse in the less productive locations since they endogenously exhibit both higher trade-induced job losses and lower job creation, as in the data. When migration is muted in response to the trade shock, inequality increases across locations and induces transitional transfers towards decaying locations, even as employment and welfare rise in the aggregate.

Job Training Subsidies, Reemployment and Earnings in the Trade Adjustment Assistance Program

Average job training subsidies in the Trade Adjustment Assistance Program vary by state due to the cost of particular training programs chosen by participants. This study partitions the higher and lower subsidy states from 2010 to 2014 and estimates differences in the effectiveness of their average subsidy levels on reemployment and subsequent earnings. The rationale for partitioning is that higher cost programs tend to be more occupation or skill oriented than lower cost programs and might, therefore, be more effective. There is found to be only a small increase in the rate of reemployment with increases in the subsidy across all states, though it is fractionally higher in the higher subsidy partition. The contemporaneous state-level macroeconomic conditions have virtually no effect on the rate of reemployment. There is also a small increase in subsequent earnings as the subsidy increases, but only in the lower subsidy partition. Increases in earnings across all states are attributed to the state-level macroeconomic conditions, particularly inflation. These findings emerge from a different empirical approach than taken in earlier studies, but corroborate that the program's job training requirement has been only moderately effective overall, though better at promoting reemployment than higher earnings.

Does Canada need trade adjustment assistance?

Trade adjustment assistance (TAA) is government aid to those affected by trade agreements. We review the history of TAA in Canada and ask whether Canada needs to reintroduce it in response to the recent intensification of trade negotiations. In light of the compensation offered by the federal government in connection with the Canada–European Union Comprehensive Economic and Trade Agreement (CETA), we examine how TAA fits in with the evolution of Canadian federalism in the trade policy area. Based in part on interviews with provincial trade negotiators, we conclude, first, that the compensation is an outcome of Canadian federalism. Second, we argue that while there is no reason to reintroduce a federal TAA program for workers, compensation for provinces is necessary to facilitate their cooperation with the implementation of trade treaty provisions. Third, we suggest that a more transparent rationale for such compensation would be superior to the ad hoc compensation observed in CETA.

An Evaluation of the Korean Trade Adjustment Assistance (TAA) program

This policy analysis examines the key issues involved in the Korean Trade Adjustment Assistance (TAA) program. As an important trade policy platform, this research details how the TAA provision targets impacted businesses and employees and documents the program’s eligibility criteria and its evolution over time. The US TAA and EU EGAF programs are also reviewed by detailing their respective strengths and their differences from their Korean counterpart. Finally, we document a range of areas where the Korean TAA initiative needs to be improved in order to best assist the firms and employees that have been negatively impacted by trade liberalization policy.

Domestic gains from offshoring? Evidence from TAA-linked U.S. microdata

We construct a new linked data set with over one thousand offshoring events by matching Trade Adjustment Assistance (TAA) program petition data to U.S. Census Bureau microdata. We exploit these data to study the short- and long-term effects of offshoring on domestic firm-level employment, output, wages, and productivity in this large sample of offshoring events. As implied by heterogeneous firm models with high fixed costs of offshoring, we find that the average offshoring firm in the TAA sample is larger, more productive, older, and more likely to be an exporter, than the average non-offshorer. After initiating offshoring, TAA-certified offshorers experience large declines in employment (0.38 log points), output (0.33log points) and capital (0.25log points), and a concomitant increase in capital and skill intensity, relative to their industry peers. We find no significant change in average wages or productivity measures. Even six years after the initial offshoring event, we find no recovery in employment, output, or capital, and a higher probability of exit. We find similar results (including decline in output, and unchanged wages and productivity) for the aggregate of non-TAA certified plants of multi-plant offshoring firms. We find that the substitution of domestic activity by offshoring is stronger for relatively lower wage, lower capital intensity, lower productivity offshorers. Our results are consistent across two separate difference-in-differences (DID) approaches, and a number of robustness checks.

Paths and Strategies Towards the FTAAP: Linking Integration and Inclusive Growth

While the pathway to the Free Trade Area of the Asia-Pacific (FTAAP) has been intensely discussed with a focus on its architecture, something has been missing: how to link trade and investment liberalization with inclusive growth of the APEC economies. The APEC economies have been increasingly open to trade and investment, but domestic distortions persist. The consequences have been less beneficial effects of trade and investment liberalization to domestic stakeholders. In particular, less-advantageous minorities have become more vulnerable to external economic shocks. If these failures are not urgently and seriously addressed, political support for further integration towards the FTAAP will continue to weaken. This reckoning has led to this paper.This paper offers policy options to make the FTAAP more conducive to inclusive growth of the APEC economies. Policy proposals are offered in two fronts. At negotiations, a grand compromise between advanced and developing economies should be sought to make negotiations agenda more comprehensive and balanced. Under this grand bargain, protected sectors in advanced economies -- potential exporting sectors for developing economies -- would be opened in exchange for more commitment in new rules by developing economies. To make this grand bargain politically possible, each side should do its homework domestically. Empowering human capital and skill upgrading programs will be urgent and imperative, along with designing more effective trade adjustment assistance programs. To enhance the possibility of achieving this comprehensive and balanced agenda, and to ensure all are on board, a two-track commitment should be designed. At the domestic front, major distortions which have obstructed a more inclusive integration in the past should be urgently corrected. Specifically, policy preference for incumbents should be removed; labor markets should become less rigid; capital markets should be accessible to all; and social safety nets should be strengthened.

An Evaluation of the Korean Trade Adjustment Assistance (TAA) program

This policy analysis examines the key issues involved in the Korean Trade Adjustment Assistance (TAA) program. As an important trade policy platform, this research details how the TAA provision targets impacted businesses and employees and documents the program’s eligibility criteria and its evolution over time. The US TAA and EU EGAF programs are also reviewed by detailing their respective strengths and their differences from their Korean counterpart. Finally, we document a range of areas where the Korean TAA initiative needs to be improved in order to best assist the firms and employees that have been negatively impacted by trade liberalization policy.