Don’t Link Ineffective, Wasteful TAA Program to Free Trade Agreements
David Muhlhausen /
Congress is currently waiting for the Obama Administration to send it three pending free trade agreements (FTAs) with Colombia, South Korea, and Panama. While these FTAs would boost economic activity and strengthen ties between participating nations, the Administration and many in Congress want passage of the FTAs to be linked to the reauthorization of the Trade Adjustment Assistance (TAA) program.
This ineffective and costly program provides job training, relocation allowances, and unemployment pay for workers who lost their jobs due to foreign trade while they attempt to shift into new occupations. Congress should not link the passage of FTAs to renewal of TAA.
With out-of-control spending and surging public debt threatening our nation’s stability, renewing TAA makes little sense. TAA provides overly generous benefits for only a small fraction of laid-off workers. Worse, there is little empirical support for the notion that TAA boosts participants’ earnings. For example, an evaluation using a propensity score analysis by Professor Kara M. Reynolds of American University and a colleague found “little evidence that it helps displaced workers find new, well-paying employment opportunities.”
In fact, TAA participants experienced a wage loss of 10 percent. The authors concluded that this negative impact “is obviously not the result one would expect from a program designed to help displaced workers.” This trend was confirmed by a Government Accountability Office report that concluded that TAA participants are more likely to earn less in their new employment.
The TAA does nothing for the vast majority of unemployed Americans. Only a small minority of workers actually lose their jobs to trade. Mass layoffs and unemployment insurance receipt data both show that foreign competition accounts for only 1 percent of job losses. Domestic competitors, new technology, and changing consumer preferences cost far more jobs than foreign trade. Under TAA, the government taxes all Americans to provide especially generous benefits to a selected few.
Linking the FTAs to passage of TAA is unwarranted. The clearly beneficial FTAs deserve to be considered on their own merits and not weighed down with the ineffective and wasteful TAA program. Congress should not agonize over the difference between a straight renewal of TAA at pre-stimulus levels and an even greater expansion. Instead, Congress can immediately send a clear message that it is getting serious about our nation’s dire fiscal straits by letting the entire TAA program expire in February 2012.