June 16 (Bloomberg) -- When President John F. Kennedy set out to cut tariffs in 1962, unions feared imports would hurt the likes of Ohio steelmakers and New England shoemakers. So Congress enacted Trade Adjustment Assistance, an aid plan for displaced factory workers. The creaky program is still with us almost 50 years later. It needs to be recast for the modern global economy.
TAA is in the spotlight because Democrats are hitching a costly expansion of the program to approval of free-trade agreements with South Korea, Panama and Colombia. In return, Senate Republicans, who view TAA as welfare for a small segment of the unemployed, want it dismantled. They are refusing to confirm John Bryson, a former utility executive, to be the next Commerce secretary until the White House sends the trade accords to Congress. Luckily, there’s a way out of the logjam.
Last year, TAA spent about $2 billion on a grab bag of extended jobless benefits, retraining programs, relocation allowances and health-care tax credits for U.S. workers who lost their jobs for trade-related reasons. The well-intentioned program has become so distended that it’s no longer effective.
Outside assessors have taken TAA to task for years, with one notable critique coming in a 2008 study by American University economists Kara Reynolds and John Palatucci. They found that TAA participants, on average, took 30 percent pay cuts in their next jobs. Unemployed people who didn’t participate fared better. As the two economists wrote, the trade assistance program “is of dubious value in terms of helping displaced workers find new, well-paying employment.”
Democrats would expand TAA by adding newly laid-off service-sector and government employees to the manufacturing workers already covered. They would give benefits to anyone whose job was outsourced or cut because of foreign competition, not just because of a free-trade deal, as the law now states. And they would allow benefits for the jobless beyond what’s available through normal unemployment insurance.
These proposals would do little to reform TAA; there would just be more of what was there before. The approach also skirts a discomfiting question: Why should workers whose jobs were lost because of overseas competition get a better deal than other jobless Americans? The most charitable answer is that TAA helps build support for trade liberalization within society and among politicians who fear the disruption that trade causes.
If Democrats continue on this course, compromise will elude both parties and genuinely important trade agreements will remain in suspended animation. The solution is to update TAA so that it does what it’s supposed to do: quickly retrain the jobless and match skills with employer needs. Three simple reforms would make TAA a more efficient program.
Stop the Checks
First, stop writing TAA checks for extended unemployment. If lawmakers and the White House believe some people deserve extra income support in trade-related cases (and some may), then that’s best dealt with under regular unemployment programs.
Second, promote faster, more intensive training -- and make all TAA benefits contingent on receiving training. The TAA petition process can leave laid-off workers in limbo for months, before they know whether they are eligible for aid. Once accepted, they can too easily bypass training requirements. Only about one in four received some form of training in 2009. Training and aid need to go hand-in-hand.
Too Little Money
And third, make sure there is adequate funding for job search and relocation aid. Currently TAA offers a maximum of $1,250 in job-search aid; that barely pays the hotel and airfare for a single trip these days. TAA also covers 90 percent of “reasonable and necessary” moving expenses -- a benefit that few eligible recipients claim. A move can make all the difference in the world; the U.S. Labor Department, which runs TAA, could do a better job publicizing this benefit and matching workers with vacancies in other states. Last year, for instance, 96 percent of TAA beneficiaries in Minnesota, where the economy is strong, found jobs -- compared with a nationwide hiring rate of 53 percent.
With these changes, trade assistance will be more cost-effective and logical. And the three trade deals, which have a better chance of producing new jobs than almost anything either party is discussing, can move forward.
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