Tuesday, October 1, 2019

Trade Adjustment Assistance - Professor Post!

A recent episode of Russ Roberts' Econtalk podcast featured economist and author of several popular books on globalization including "Straight Talk on Trade" (2017) and "The Globalization Paradox" (2011) Dani Rodrik discussing economic neoliberalism (which Rodrik dubs "market fundamentalism"), trade, welfare, jobs, and dignity. A small slice of the discussion included the topic of Trade Adjustment Assistance (TAA), which Roberts and Rodrik largely agree has failed to varying degrees in the US. Here, I want to propose a couple of thoughts for why TAA hasn't succeeded as much as it might have in the US.
One reason that Rodrik points out is that, in contrast to many countries in Europe, TAA in the US is not "baked in with" the overall social safety net. While this may be true, it begs the question about why this is the case. One reason is that globalization has been a continuing long run phenomenon. While the market value (income) for sector-specific factors like specific capital or specific skills may degrade initially, these eventually become mobile, and to a large extent, workers have been fairly adept at acquiring skills in sectors that have expanded. What it doesn't account for is the long, grinding degradation of wages that the Heckscher-Ohlin model predicts.
Hence, the main reason that TAA fails in the US and succeeds in other countries is because TAA in the US requires petitioners to demonstrate how trade has caused their adjustment problem. Workers affected by a long-run deterioration of wages due to trade or automation may not be able to demonstrate how or why they "deserve" TAA, narrowly defined. A "no-fault" safety net might be a better way to mitigate losses to trade and/or automation without killing the golden goose.

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