The U.S. Trade Adjustment Assistance Program
Introduction
Hyman et al. (2024) study the labor market effects of a 2009 wage insurance policy implemented through the U.S. Trade Adjustment Assistance program.
Under this policy, workers over age 50 who lost their job due to international trade were eligible to receive wage insurance subsidies if they became re-employed at a lower wage. In particular, the transfers would be up to half the difference between their pre- and post-job loss wages and would last for two years. The policy was meant to shorten non-employment spells and provide an alternative to retraining.
The paper uses administrative data and a difference-in-discontinuity design to estimate the treatment effect of eligibility for wage insurance on labor market outcomes. The analysis compares those who are older than 50 when they become laid off, and therefore eligible for wage insurance immediately, to those who are just below the age cutoff. The paper finds that wage insurance eligibility leads to shorter non-employment durations and earnings gains up to four-years post-separation.
Pays for Itself
Net Cost
The paper estimates the net cost per wage insurance eligible worker as the administrative cost, effective subsidy payment, and savings from increased tax revenues and decreased unemployment insurance (UI) payments.
The paper uses the administrative cost estimate from Dolfin and Schochet (2012), which gives $1,105 (2006 USD) per TAA recipient. Inflating this to 2010 USD and multiplying by the ratio of eligible workers who receive TAA services (0.5) and the ratio of service-receiving eligible workers who receive wage insurance (0.25) leads to an estimate of $149 in administrative costs per eligible worker.
The effective subsidy payment per eligible worker is modeled as the average subsidy in the recipient group ($5,600) multiplied by the percentage of eligible workers who are aware of the program (the paper uses the 53.1% estimate from Dolfin and Berk (2010)). This leads to an effective subsidy of $2,970 per eligible worker.
The average quarterly UI benefit is estimated as $5,031 from Kovalski and Sheiner (2020). Using the estimate that wage insurance eligible workers have 1.002 fewer quarters of non-employment, this totals $5,041 in savings from reduced UI benefits.
In addition, savings from increased income tax revenue is estimated as:
where \tau^{INC} is set to 19.3% to incorporate state and federal income taxes. The paper uses a quarterly discount rate of 1.22% and \gamma_{3}^{t, earnings} is the treatment effect of being eligible for wage insurance on earnings in each quarter. Combining the UI savings and increased tax revenue leads to total savings of $10,818 per eligible worker.
Thus, the net government cost per eligible worker is $149 + $2,970 – $10,818 = -$7,699.
Willingness to Pay
The paper models the willingness-to-pay as the subsidy, reduced disability insurance benefits, as well as earnings gains adjusted for the disutility of labor.
Using the same effective subsidy of $2,970 per eligible worker from above and reduced disability insurance benefits of $5,041 leads to a net subsidy decrease of $2,970-$5,041 = -$2,071. As these subsidies are both subject to income tax, the transfer component is (1-.0193)*-$2,071 = -$1,671.
The earnings component of willingness-to-pay is modeled as:
The parameter z is the adjustment for the disutility of labor and is taken to be 0.6 as estimated in Mas and Pallais (2019). As above, \tau^{INC} is set to 19.3% to incorporate state and federal income taxes, and \tau^{PAY} is 7.65%. The quarterly discount rate is 1.22% and \gamma_{3}^{t, earnings} is the treatment effect of being eligible for wage insurance on earnings in each quarter.
The earnings gains over the first sixteen quarters outweigh the reduction in transfers, so the willingness-to-pay is positive.
MVPF Summary
The paper estimates a positive willingness-to-pay and a negative government cost, yielding an infinite MVPF estimate for wage insurance subsidies.
References
Hyman, Benjamin, Brian Kovak, Adam Leive (2024). “Wage Insurance for Displaced Workers.” NBER Working Paper 32464. https://www.nber.org/papers/w32464.
Dolfin, Sarah and Jillian Berk (2010). “National Evaluation of the Trade Adjustment Assistance Program: Characteristics of Workers Eligible Under the 2002 TAA Program and Their Early Program Experiences,” Technical Report, Mathematica Policy Research.
Dolfin, Sarah and Peter Schochet (2012). “National Evaluation of the Trade Adjustment Assistance Program: The Benefits and Costs of the Trade Adjustment Assistance (TAA) Program Under the 2002 Amendments,” Technical Report, Mathematica Policy Research. https://www.dol.gov/sites/dolgov/files/ETA/publications/ETAOP_2013_09.pdf
Kovalski, Manuel Alcala and Louise Sheiner (2020). “How does unemployment insurance work? And how is it changing during the coronavirus pandemic?” https://www.brookings.edu/articles/how-does-unemployment-insurance-work-and-how-is-it-changing-during-the-coronavirus-pandemic/
Mas, Alexandre and Amanda Pallais (2019). “Labor Supply and the Value of the Non-Work Time: Experimental Estimates from the Field.” American Economic Review: Insights, 1: 111-126. DOI: https://www.aeaweb.org/articles?id=10.1257/aeri.20180070
Policy Features
- Category
- Social Insurance
- Sub-Category
- Job Re-Entry
- Beneficiary Type(s)
- Adults
- Average Age
- 45
- Average Income
- 45,160
- Country of Implementation
- United States
- Year of Implementation
- 2009
- Empirical Method
- Regression Discontinuity
- Research Type
- Primary
- Peer Reviewed
- No
- MVPF Publication Link
- www.nber.org/papers/w32464