Brian Aunspach thought he had a job for life. After six years at a smelter owned by Alcoa, America’s largest aluminum company, his work was hard but the benefits decent. Warning signs came with crashing aluminum prices in the summer of 2015 and murmurs about unfair Chinese competition. Then reality hit: In January 2016 Alcoa announced the smelter’s closure. Around 600 people lost their jobs.
The events of 2016, from Brexit to Donald Trump’s election, were widely seen as a backlash against globalization. The Warrick smelter in Indiana, which shut amid “challenging market conditions,” was perceived to be a victim of free trade. Thus the likes of Aunspach, an American displaced by trade, are the objects of keen attention from policy wonks as well as politicians.
His is an old problem, and one with old solutions. Since 1962 America has earmarked funding to help people adjust to trade-related shocks. Trade-Adjustment Assistance offers people money for retraining and income while they are retrained. Workers older than 50 can get their wages topped up by 50% of the difference between their new and old wages. That money is meant to help cushion the financial blow and to nudge them toward on-the-job training.
On paper TAA should make wonks glow. It protects workers, not jobs, and links qualifications to local demand. Aunspach is a beneficiary, and a big fan. He credits Pam Haskins, his caseworker and “life coach,” with helping him see that he was getting “the opportunity of a lifetime.” His income from TAA eased his initial panic about feeding his children and paying his mortgage, and allowed him to take a lengthy welding qualification. Without TAA, state benefits to pay for his course would have lapsed after six months.
Haskins also thinks that TAA works, but qualifies that by saying, “they have to want it.” Some of Alcoa’s ex-employees were snapped up by other companies. Others drifted into early retirement. Still others waited, hoping that the smelter would reopen, swayed by Trump’s promises to help the industry.
In the 12 months to September 2016, only 127,000 workers received TAA. Applying is tricky and can be slow. Haskins knows of one coal supplier who, 18 months after the Warrick smelter closed, still was waiting for approval for the 30 employees he had let go.
Americans have been turning elsewhere. Economists David Autor, David Dorn and Gordon Hanson have estimated that, of the extra government payments associated with Chinese import competition between 1990 and 2007, only 6% came through TAA or unemployment insurance. Most came from other sources: 32% from disability or retirement insurance, 26% as federal-government income assistance and 32% as extra medical spending.
Historically TAA has had narrow eligibility criteria: For its first seven years, no one qualified. Since then coverage has undulated, expanding in 2009 to include people in service industries, then contracting in 2014 as the provision expired. Now they are covered again, but only until 2021.
The program can be confusing and administratively complex. Worse, most Americans have never heard of it. Also, it can be difficult to avoid the stigma associated with getting state help, Aunspach added.
Howard Rosen, an architect of the current TAA law and executive director of the Trade Adjustment Assistance Coalition, a lobbying group, complains that successive governments have failed to push TAA: “We like to have programs,” he said, “but we don’t want people to use them.”
Building support for TAA might be easier if evidence of its benefits were more solid. Headline statistics seem impressive: Within three months of leaving the program, participants boast a 74% employment rate, and 92% of those still are employed three months later. Nonetheless, success relative to the amount spent on it, or relative to other programs, is hazier.
The TAA was set up without any proper system to gauge its effectiveness. Its most recent thorough assessment, in 2013, found that recipients had lower incomes than similar people receiving unemployment insurance during its first four years. Overall they estimated that the program was a net loss to TAA participants of almost $27,000.
Four years might not be long enough to measure the gains from retraining, however, and moreover the evaluation happened immediately before America’s recession. Since people without TAA joined the work force sooner, before the worst of the downturn, it is perhaps unsurprising that they fared better during the subsequent period.
Besides lacking a framework for assessing success, the scheme has other flaws. Rosen thinks that the government should offer people help in starting their own businesses, and expand the wage-insurance component to workers younger than 50.
By law, employers about to engage in mass layoffs have to tell the government about it 60 days before the fact. Roy Houseman, whose job is to help people apply for TAA, thinks that notice of a mass layoff should also trigger an automatic TAA application.
© 2017 Economist Newspaper Ltd., London (July 1). All rights reserved. Reprinted with permission.
Image credits: Stephen Crowley/The New York Times