Is Trade Adjustment Assistance Effective?

Open Access
Author:
Li, Li
Area of Honors:
Economics
Degree:
Bachelor of Science
Document Type:
Thesis
Thesis Supervisors:
  • James R. Tybout, Thesis Supervisor
  • Bee Yan Roberts, Honors Advisor
Keywords:
  • TAA
  • Trade Adjustment Assistance
  • International Trade
  • International Economics
  • Specific-factors model
  • trade
  • globalization
Abstract:
The Trade Adjustment Assistance (TAA) program offers unemployment benefits to U.S. workers who have been displaced from the workforce as a result of import competition. The program aims to reemploy displaced workers; therefore the program includes a mandatory training requirement in addition to monetary support. TAA began under the Kennedy administration as a way to reduce the use of protectionist measures following trade negotiations. Over the years, the program served a political role of making opponents more agreeable to trade liberalization policies. The program also acts as a method of redistribution of payoffs from the winners of trade to the losers. The difficult question of whether TAA is effective in its advertised goal can be analyzed in an indirect and direct method. First, studies of federal unemployment insurance program (UI) can be interpreted and applied to TAA, which can be viewed as an extension of the federal UI program. But a problem becomes apparent in the analysis that the TAA recipients do not represent a sample of the unemployed population. TAA recipients are the ones facing the worst reemployment conditions since TAA-eligible workers’ industry may face high import penetration rates. This often requires displaced workers to retrain for employment in another industry. This means that applying the UI findings directly to TAA workers does not provide a sound conclusion. Studies exist that analyzes TAA specific data. This direct method minimizes the self selection problem although it does not eliminate it entirely. To answer the original question, the paper looks at the escape rate and reemployment wages of TAA recipients. The escape rate is an indicator of how quickly workers can move back into the work force. These two indicators for TAA recipients who have undergone training can be compared to TAA non-trainees and non-recipients to see if the program had any positive effects. From evidence presented through the escape rate analysis, the program is effective. In terms of reemployment wages, TAA trainees were found to receive higher wages after 12 quarters on the new job; however sample selection issues prevented a firm conclusion. The human capital theory can then be applied to further support the findings. If the program is assessed on a bigger scale, it certainly is effective. For more than 50 years, TAA has reduced opposition to trade liberalization.