Congressional Testimony on the Effectiveness of Trade Adjustment Assistance and Suggestions for Improving the Program

In this testimony, I will sketch key findings from research that I conducted with others, bearing on the justification and effectiveness of trade adjustment assistance. Most economists agree that protecting workers from the negative consequences of the North American Free Trade Agreement is appropriate, since we believe that a measure is unambiguously good only when some benefit, but no one is hurt. Even if trade liberalization is only a minor source of job loss, when many workers are hurt by imports, trade often is restricted. Thus, an effective assistance program can counter a drift toward protectionism that would be far more costly than compensating job losers. For example, in the early 1970's, quotas cost steel users $11 billion, while removing those quotas would have cost workers, at most,$1.5 billion. A key problem is that gains per person are small, while the losses per person are large. Even worse, many workers not adversely affected feel threatened. Thus, losers have strong incentives to restrict trade, compared to incentives gainers have to make trade freer. This is a situation where providing all threatened workers with insurance would increase the general welfare at a modest price. To reduce workers' fears, the TAA program must effectively compensate losers. Because the cost of job loss is high, benefits per person need to be substantial. Four years after displacement, 60 percent of high-tenure job losers typically have not found similar work and have earnings reduced by 50 percent. Even job losers who find similar work suffer reductions in earnings from 12 to 22 percent. Job loss is common even in prosperous times, but paradoxically, even in the worst of times, roughly two-thirds of laid-off workers are recalled. In short, most workers adversely affected by trade liberalization need protection for less than 2 years, while a minority face permanent earnings reductions. TAA extends UI payments by 26 weeks. Even in the early 1980's, UI plus TAA virtually eliminated the incidence of large losses among trade impacted workers for the first two years following jobs loss given the workers were covered by TAA. That is the good news. The bad news is that many workers with large losses did not return to similar jobs within two years, and therefore, were not adequately protected even if covered by TAA. TAA now provides training vouchers often worth $12,000 or more. Unfortunately, training programs targeted on dislocated workers have been shown to have very limited success. Even under highly optimistic assumptions, an investment in training of over$100,000 would be needed to offset the costs of job loss. The GI bill is a precedent for providing assistance of that magnitude. In 1967, the GI bill provided inflation-adjusted benefits of $80,000. High-tenure dislocated workers are unlikely to benefit from a similar program, however. They are older than vets, already have marketable skills, and sometimes are lacking basic education. The bottom line is that training is not a panacea for dislocated workers. In fact, placement services, other job search assistance, and counseling have been shown to be as effective as training, just much less expensive. My research strongly supports that view. The huge earnings difference between finding and not finding similar work suggests helping job losers to locate similar jobs could be equivalent to providing a$100,000 annuity. Equally important, plenty of comparable jobs are available. In Pittsburgh, between 1978 and 1982, one-quarter of all manufacturing jobs were filled by new hires. Even though net employment fell by 15 percent, quits and retirement opened enough job slots, so every displaced worker could have remained in that sector. In addition, the employment service has been shown to help dislocated UI exhaustees return to work 9 weeks sooner. Initially pay is below predisplacement levels, but pay grows substantially. Yet, without outside help, dislocated workers find accepting pay cuts difficult, particularly while receiving UI. Thus, my central policy conclusion is that the combination of UI and TAA does a good job in protecting the majority of trade impacted workers. But available funds would be better spent by helping dislocated workers find jobs, particularly by adequately funding the employment service. Improving the coordination between EDWAA and the ES also would help, as would improving the monitoring of UI claimants' job search. A more innovative approach, with a good chance of success, is offering wage subsidies or reemployment bonuses. Such measures should encourage more rapid return to work and at least partially offset wage reductions. Finally, we should remember that high-tenure workers need protection against sources of job loss other than government actions. Workers should be willing to pay for that protection, and many unionized workers have done just that. The government can play a key role, by encouraging labor and management to adopt measures to deal with job loss. As many workers learned in the early 1980's, by the time a threat is apparent, it is too late to solve the problem. Improving TAA is difficult, but fairness suggests the threat to workers livelihoods inherent in the NAFTA should be reduced, and common sense suggests reducing the threat is the key to maintaining free trade. I hope this testimony will contribute to making a good program better. I am very grateful for this opportunity to discuss trade adjustment assistance with you.trade, adjustment, assistance, dislocated, workers, NAFTA, Jacobson

Congressional Testimony on the Effectiveness oof the Employment Service in Aiding UI Claimants

This testimony describes the results of a study of the Employment Service (ES) conducted by Dr. Jacobson and Prof. Arnold Katz of the University of Pittsburgh using data on over 100,000 individuals who registered with the Pennsylvania ES between 1978 and 1987, and an even larger sample of non-registrants. One major finding is that much of the decline in the ES's performance over the past thirty years can be explained by changes in: funding, characteristics of registrants, and characteristics of job vacancies. Thus, we concluded that criticism of the ES often ignores changes in crucial factors outside of the ES's control that reduced its effectiveness. A second major finding is that most criticism of the ES is based on the inappropriate assumption that the primary goal of the ES should be to maximize placements. The proper measure of ES benefits is how well it reduces joblessness, increases earnings, and reduces UI and welfare payments. We found that the ES reduced the average duration of unemployment of long-term UI claimants by nine weeks. This was for UI claimants who were unemployed for at least 30 weeks. But the ES reduced joblessness of claimants unemployed for 12 weeks by less than two weeks. This is evidence that the ES is most effective in aiding claimants who had substantial trouble finding work on their own. But we suspect that the jobs found with the help of the ES do not compare favorably with jobs held prior to becoming unemployed. Thus, we believe the ES primarily acts as a backstop preventing large earnings losses. Finally, although savings in UI benefits and increases in earnings created by the ES may be modest, the cost of ES service is so low, $75 on average, that modest benefits would more than offset those costs. We believe our results, coupled with similar findings from related studies, is sufficiently strong to warrant increasing the funding of the ES. That measure is favored because it would be at least budget neutral. In contrast, other measures to assist the long-term unemployed, such as providing extended UI benefits or training, would not come close to being budget neutral. In addition,$1 spent on job search assistance is likely to be more effective in helping claimants than $1 spent on training.unemployment, insurance, employment, service, displaced, dislocated, Jacobson

Congressional Testimony on the Effectiveness of Trade Adjustment Assistance and Suggestions for Improving the Program

In this testimony, I will sketch key findings from research that I conducted with others, bearing on the justification and effectiveness of trade adjustment assistance. Most economists agree that protecting workers from the negative consequences of the North American Free Trade Agreement is appropriate, since we believe that a measure is unambiguously good only when some benefit, but no one is hurt. ... Thus, my central policy conclusion is that the combination of UI and TAA does a good job in protecting the majority of trade impacted workers. But available funds would be better spent by helping dislocated workers find jobs, particularly by adequately funding the employment service

Congressional Testimony on the Effectiveness of the Employment Service in Aiding UI Claimants

This testimony describes the results of a study of the Employment Service (ES) conducted by Dr. Jacobson and Prof. Arnold Katz of the University of Pittsburgh using data on over 100,000 individuals who registered with the Pennsylvania ES between 1978 and 1987, and an even larger sample of non-registrants. One major finding is that much of the decline in the ES\u27s performance over the past thirty years can be explained by changes in: funding, characteristics of registrants, and characteristics of job vacancies. Thus, we concluded that criticism of the ES often ignores changes in crucial factors outside of the ES\u27s control that reduced its effectiveness. A second major finding is that most criticism of the ES is based on the inappropriate assumption that the primary goal of the ES should be to maximize placements. The proper measure of ES benefits is how well it reduces joblessness, increases earnings, and reduces UI and welfare payments. We found that the ES reduced the average duration of unemployment of long-term UI claimants by nine weeks. This was for UI claimants who were unemployed for at least 30 weeks. But the ES reduced joblessness of claimants unemployed for 12 weeks by less than two weeks. This is evidence that the ES is most effective in aiding claimants who had substantial trouble finding work on their own. But we suspect that the jobs found with the help of the ES do not compare favorably with jobs held prior to becoming unemployed. Thus, we believe the ES primarily acts as a backstop preventing large earnings losses. Finally, although savings in UI benefits and increases in earnings created by the ES may be modest, the cost of ES service is so low, {dollar}75 on average, that modest benefits would more than offset those costs. We believe our results, coupled with similar findings from related studies, is sufficiently strong to warrant increasing the funding of the ES. That measure is favored because it would be at least budget neutral. In contrast, other measures to assist the long-term unemployed, such as providing extended UI benefits or training, would not come close to being budget neutral. In addition, {dollar}1 spent on job search assistance is likely to be more effective in helping claimants than {dollar}1 spent on training

Should we teach old dogs new tricks? the impact of community college retraining on older displaced workers

This paper estimates the returns to retraining for older displaced workers--those 35 or older--by estimating the impact that community college schooling has on their subsequent earnings. Our analysis relies on longitudinal administrative data covering workers who were displaced from jobs in Washington State during the first half of the 1990s and who subsequently remained attached to the state’s work force. Our database contains displaced workers' quarterly earnings records covering 14 years matched to the records of 25 of the state's community colleges. We find that older displaced workers participate in community college schooling at significantly lower rates than younger displaced workers. However, among those who participate in retraining, the per-period impact for older and younger displaced workers is similar. ; We estimate that one academic year of such schooling increases the long- term earnings by about 8 percent for older males and by about 10 percent for older females. These per-period impacts are in line with those reported in the schooling literature. These percentages do not necessarily imply that retraining older workers is a sound social investment. We find that the social internal rates of return from investments in older displaced workers' retraining are less than for younger displaced workers and likely less than those reported for schooling of children. However, our internal rate of return estimates are very sensitive to how we measure the opportunity cost of retraining. If we assume that these opportunity costs are zero, the internal rate of return from retraining older displaced workers is about 11 percent. By contrast, if we rely on our estimates of the opportunity cost of retraining, the internal rate of return may be less than 2 percent for older men and as low as 4 percent for older women.Displaced workers ; Education

Earnings Losses of Displaced Workers

The 1990-1991 recession has intensified concerns about the consequences of workers' job losses. To estimate the magnitude and temporal pattern of displaced workers' earnings losses, we exploit an unusual administrative data set that includes both employees' quarterly earnings histories and information about their firms. We find that when high-tenure workers separate from distressed firms their long-term losses average 25 percent per year. Further, their losses mount even prior to separation, are not limited to workers in a few industrial sectors, and are substantial even for those who find new jobs in similar firms. This evidence suggests that displaced workers' earnings losses result largely from the loss of some unidentified attribute of the employment relationship.earnings, wages, losses, displaced, dislocated, workers, Jacobson, LaLonde, Sullivan

Long-term earnings losses of high-seniority displaced workers

Displaced workers

Earnings Losses of Displaced Workers

The 1990-1991 recession has intensified concerns about the consequences of workers\u27 job losses. To estimate the magnitude and temporal pattern of displaced workers\u27 earnings losses, we exploit an unusual administrative data set that includes both employees\u27 quarterly earnings histories and information about their firms. We find that when high-tenure workers separate from distressed firms their long-term losses average 25 percent per year. Further, their losses mount even prior to separation, are not limited to workers in a few industrial sectors, and are substantial even for those who find new jobs in similar firms. This evidence suggests that displaced workers\u27 earnings losses result largely from the loss of some unidentified attribute of the employment relationship