Trade Adjustment Assistance
Introduction
The Trade Adjustment Assistance (TAA) program (TAA) provides assistance to workers whose livelihoods are hurt (either through job loss or reduced hours) by an increase in imports or an increase in off-shoring of production. The primary benefit provided to TAA recipients is coverage for the cost of “basic” retraining for up to two years, with the potential for a third year of “remedial” or “completion” training. In addition, recipients are also entitled to expanded unemployment insurance while they are enrolled in a qualified training program. There were about 230,000 TAA recipients in 2010, with nearly $1 billion in subsidies distributed.
Hyman (2018) studies the impact of the Trade Adjustment Assistance program on subsequent labor force outcomes of participants. The author finds that, after 10 years, TAA recipients had, on average, $50,000 higher cumulative earnings relative to non-TAA recipients. They estimate that 1/3 of those earnings gains are driven by higher wages, rather than greater labor force participation. However, the difference in annual wages between TAA recipients and non-TAA recipients declines to approximately zero by the end of that 10-year period.
MVPF = 2.7
Net Cost
The total costs of the policy are equal to the sum of the direct cost and all associated fiscal externalities. Hyman (2018) estimates this as:
Here, d\tau is the fiscal externality from changes in tax revenue due to changes in earnings. dB is the fiscal externality from changes in use of other government transfers such as SSDI and cash welfare. \Omega is the fiscal externality from the job search disincentive imposed by the TAA program. All of these effects are measured per $1 in TAA spending.
For d\tau, the author calculates that $1 of TAA a fiscal externality of $0.28 per dollar of TAA spending. The intent to treat estimate from the paper suggests that TAA is associated with a $54,537 increase in earnings. Dividing the earnings gains by a 45% TAA take-up rate suggests an increase in earnings of $121,193 per treated individual. Applying the 11.74% tax rate implies a net cost savings from increased tax revenue of $14,228, or 0.284 per dollar of spending.
For \Omega, the author incorporates an estimate of $0.141 from Bloom et al. (1997) on the cash welfare spending savings per dollar of programmatic spending. That is combined with an estimated change in SSDI spending of $0.0235 from Autor et al. (2014). For dB, the author uses estimates of the search disincentive from unemployment insurance benefits using estimates from Schmieder and Von Wachter (2016). They estimate that $1 of UI benefits imposes a fiscal externality of 34.5%. Combining, each of these fiscal externalities implies a net cost of:
Willingness to Pay
The willingness to pay is calculated as the sum of the earnings effect starting after two years of training and continuing through the ninth year after training, discounted back to before retraining begins. The author estimates an 11 year cumulative discounted earnings effect of
where \beta_\tau is the causal effect of TAA on post-tax earnings in year \tau -1, using a r=5% interest rate. The author then divides through by 0.45 to scale this intention-to-treat estimate by the fraction who take up TAA benefits. Taken together, this implies a net willingness to pay of $121,193.
MVPF Summary
Combining the willingness to pay of $121,193 and net cost of $44,833 implies an MVPF of 2.75.
Hyman (2018) highlights a potential concern with this MVPF calculation is that that eligibility for TAA could causes a reduction in search effort or earnings prior to application for TAA. In that case, there could be an earnings decline not only for for the treatment group who obtain TAA, but also for the control group who does not obtain TAA. These types of additional fiscal externalities would tend to lower the MVPF.
References
Autor, David H., Dorn, David, Hanson, Gordon H., and Song, Jae (2014). ”Trade Adjustment: Worker-level Evidence.”
The Quarterly Journal of Economics, 129(4): 1799-1860.
https://academic.oup.com/qje/article-abstract/129/4/1799/1854509
Bloom, Howard S., Larry L. Orr, Stephen H. Bell, George Cave, Fred Doolittle, Winston Lin and Johannes M. Bos (1997). “The Benefits and Costs of JTPA Title II-A Programs: Key Findings from the National Job Training Partnership Act Study.” The Journal of Human Resources, 32(3), 549-576. DOI: https://doi.org/10.2307/146183
Hyman, Ben (2018). “Can Displaced Labor Be Retrained? Evidence from Quasi-Random Assignment to Trade Adjustment Assistance”. Working Paper. https://static1.squarespace.com/static/5acbd8e736099b27ba4cfb36/t/60aea8377df5c7766e13ad39/1622059065613/Hyman_TAA_Nov2018.pdf
Schmieder, Johannes F. and Till Von Wachter (2016). “The Effects of Unemployment Insurance Benefits: New Evidence and Interpretation.” Annual Review of Economics, 547-581. https://www.annualreviews.org/doi/abs/10.1146/annurev-economics-080614-115758
Policy Features
- Category
- Social Insurance
- Beneficiary Type(s)
- Adults
- Average Age
- 44
- Average Income
- 23000
- Country of Implementation
- United States
- Year of Implementation
- 1995
- Empirical Method
- Lottery
- Research Type
- Primary
- Peer Reviewed
- No