Displacement-related Earnings Losses: Evaluating Trade Adjustment Assistance and Wage Insurance

Abstract

More than five million workers have been certified as trade displaced by the Department of Labor since the Trade Expansion Act of 1962 created the Trade Adjustment Assistance (TAA) program. The Trade Promotion Authority Act of 2002 reauthorized TAA, merged the North American Free Trade Agreement (NAFTA)-Transitional Adjustment Assistance program with TAA to establish the Consolidated TAA program, and created a demonstration wage insurance program dubbed Alternative TAA (ATAA). These programs serve the dual purpose of 1) reducing opposition to trade liberalization and 2) assisting trade-displaced workers as they transition to reemployment. Several studies have documented long-run monetary losses stemming from job displacement. We detail these studies and their findings below. The effectiveness of public programs designed to aid displaced workers in terms of reducing earnings losses has yet to be evaluated. Surely, understanding the performance of existing policy may assist future policy formulation; thus, we explore how stylized versions of the Consolidated TAA and ATAA programs perform in terms of reducing the earnings losses that stem from job displacement.