A Better Way to Help U.S. Victims of Free Trade
(Bloomberg View) -- If Donald Trump was consistent about one thing on the campaign trail, it was his rejection of the prevailing Washington consensus in favor of globalization and free trade. Now, weeks before taking office, he has pledged to tear up the Trans-Pacific Partnership on the first day of his presidency and kept Carrier from moving a factory to Mexico. His campaign threats to withdraw from the World Trade Organization and slap high tariffs on China and Mexico are already causing tremors in the global economy, amid fears of a possible trade war.
While data overwhelmingly show that globalization has been a net-plus for the global economy, there is no denying that the domestic costs of the new economy have fallen disproportionately on certain sections of the workforce. Manufacturing jobs in the U.S. dropped by almost 6 million jobs between 2000 and 2010, leading to a host of social ills such as alcohol and opiate dependency, depression and community disintegration. Among the wrenching costs of Rust Belt industrial decline is the revelation that, after rising for decades, the life expectancy of white Americans has started to fall, driven in no small part by suicide and overdose.
While this helps explain Trump's victory, it doesn't offer many clues on rejuvenating the nation's industrial heartland. In fact, the evidence shows that trade liberalization itself is not primarily responsible for those U.S. job losses. According to the Bureau of Labor Statistics, less than 3 percent of mass layoffs from 1996 to 2006 could be attributed to import competition and overseas plant relocations. Other studies show that only one-eighth to one-third of the recent loss of U.S. manufacturing jobs can be traced to trade liberalization, with the rest due to unstoppable technological innovation.
Turning things around calls not for higher tariffs and tightened borders, but a set of policies that take seriously the concentrated impact that economic change has on displaced workers and their communities.
Since 1947, the U.S. has helped to reduce tariffs on industrial products worldwide from nearly 50 percent on average to less than 5 percent. But Washington has never built a robust system to aid those adversely affected. It allots far less to retraining, job searches and relocation assistance than other industrialized nations, and U.S. programs are poorly thought out and managed. Fortunately, there are some clear steps that can be taken to remedy the initiative that is designed to address this problem: the Trade Adjustment Assistance program.
That program, run by the Labor Department, provides $900 million each year in extended income support, skills training, job-search assistance and other resources to workers who have lost their jobs as a result of foreign trade.
It is rife with problems. Those who receive training wait an average of more than seven months from the time they file for unemployment insurance. The overwhelming majority receive their instruction in the classroom, with less than 2 percent in apprenticeships or other on-the-job settings. Traditionally, program rules have discouraged people from working part-time while training for a new career. And although workers can receive allowances to help them relocate to a job, these are capped at $1,250, and less than 1 percent of program participants use them.
No wonder that almost two-thirds of participants in the program end up working in a field other than the one in which they received new training. And a recent study commissioned by the Labor Department found that the program has had at best a negligible impact on workers’ employment prospects over time, and even a negative impact on their wages. When the New York Times recently asked the president of an Illinois steelworkers union about the federal trade-adjustment program, he rolled his eyes.
Now compare this to the experiences of foreign workers. One analysis that looked at the labor market policies in 20 other countries found that their worker training and job search programs succeed in reducing unemployment, and did so in a cost-effective manner. The most successful programs, such as in Denmark, Germany and Switzerland, tend to have a number of similar traits: They aggressively press workers into training programs, in some circumstances making it mandatory in order to receive other benefits. They engineer flexible opportunities with industry for workers including apprenticeships and short-term training opportunities. And they subsidize part-time opportunities for workers, to keep them in the workforce and their skills sharp while they look for new opportunities.
Reforming the trade-assistance program along those lines would be only the first step. Next, it should be expanded to cover all displaced workers, no matter the reason they lost their jobs.
In 2011, the Government Accountability Office identified a crazy quilt of 47 different federal employment and training programs, almost all of them overlapping in one way or another.
But in general, those who are deemed to have lost their jobs as a result of foreign trade receive a far more extensive and guaranteed bundle of income and training support than those displaced for non-trade reasons.
The result: The system is susceptible to persistent charges of arbitrariness and even political tampering in eligibility decisions, and it helps only a small sliver of those forced out of work.
Yes, expanding the program to all workers will cost money. But the U.S. spends less of its gross domestic product on worker employment and training programs than almost every one of its peers. In 2014, OECD countries spent about 0.53 percent of GDP on these active labor-market programs. In the U.S., the figure was 0.11 percent, a 30-year low. Yet one recent analysis estimated that the U.S. could reduce the unemployment rate by 1 percent if it invested an additional $43.7 billion each year in training programs each year -- a mere fraction of the hundreds of billions of dollars that are under consideration in Trump's new national infrastructure package.
In the long run, of course, even the best worker-retraining programs can only be one plank in a comprehensive program to build the skills and resilience of the American worker for the future. After decades of growth in educational attainment in the U.S. in the first three-quarters of the 20th century, high school and college completion rates have stagnated since, a trend that scholars have tied directly to rising economic inequality in our country. Restoring our education system to its global pre-eminence, including a new emphasis on vocational and flexible lifelong learning, will be key.
But in the shorter term, if Donald Trump truly intends to make America great again, he should understand that turning back the tide of free trade and technology is not possible. The best way forward is harnessing globalization's benefits while also addressing the legitimate needs of those who have paid the biggest price.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
To contact the authors of this story: Ronald J. Daniels at email@example.com, Michael Trebilcock at firstname.lastname@example.org.