The Fate of Trade Adjustment Assistance: The Basics

June 11, 2015 12:15 PM

Trade Adjustment Assistance (TAA)—the federal program for workers who lose their jobs because of competition from increased imports or outsourcing of jobs to locations abroad—has emerged as a major element in the Congressional debate on trade. Ironically, and unfortunately, the AFL-CIO is now urging Congress, particularly Democrats, to vote against TAA. The labor movement cites a combination of reasons, including insufficient funding, exclusion of public workers from coverage, and the pending cut in Medicare (see more below).1 But the AFL-CIO’s main, though unstated, fear is that the existence of this program, which will help American workers, would make it easier for lawmakers to support Trade Promotion Authority (TPA) leading to eventual passage of the Trans-Pacific Partnership (TPP).2 Congress should ignore the critics of TAA (the AFL-CIO on the left and the Heritage Foundation on the right) and renew it as an essential complement to the broader trade and investment liberalization agenda, which appears to be inching toward approval this week.

What follows is a primer on how TAA works and why it is essential.

TAA has been a part of US labor laws since the Kennedy administration in the early 1960s. Since the Trade Act of 1974, two million workers have benefited from it. TAA was last reauthorized in 2011, but in January 2014, the benefits and criteria for eligibility became more restrictive. The current iteration of the program expires in September. The new TAA package under consideration would expand certain provisions, reinstate higher benefit levels, and renew coverage of service workers. It would reauthorize the program for 7 years—the longest of any previous extension.

TAA has avid supporters and fierce critics. Historically, some Republicans have resisted TAA as an ineffective “entitlement” program, while Democrats have demanded TAA in return for their votes for trade liberalization. TAA and TPA are intrinsically linked to elicit bipartisan support.3 Indeed, the Senate vote in May 2015 on TPA included TAA reauthorization. However, the House plans to hold two separate votes, the first on TPA and the second on TAA. The TAA vote has been temporarily held up by a squabble over how to fund TAA benefits. The Senate version offsets TAA costs in part through a $700 million haircut on Medicare payments to healthcare providers; the House is searching for alternative funds, because many Democrats object to this reduction of Medicare spending.4

Whatever the funding mechanism, TAA is essential to provide a minimum safety net for those who inevitably bear the adjustment burden from trade and investment liberalization. While the US gains from a big agreement like the TPP outweigh the losses by at least 10 to 1, the losses are concentrated and inflict real distress on affected workers.

TAA in Brief

TAA entails several benefits for US workers affected by trade and offshoring. These have included subsidized training; case management and career counseling; job search and reallocation allowances; income support for training participants, so-called Trade Readjustment Allowances (TRA); and wage insurance for workers over 50 years of age (see Collins 2014 for more detail). To become certified to receive such assistance, groups of workers must submit a petition to the Department of Labor (DOL), which then verifies the role of trade in job dislocation. If approved, individual workers covered by the petition may apply for benefits. Case management and training services generally comprise the largest number of participants, followed by TRA.

In recent years (2011–13), roughly 1,400 petitions per year have been filed for TAA and of these, some 80 percent were certified (see table 1). A decade ago, nearly 200,000 workers were covered under certified petitions; today that number is roughly 100,000. Note, however, that not all workers who are covered by a certified petition participate in the program’s benefits. As an illustration, table 1 shows the actual participants in job training and the recipients of TRA. The numbers are much smaller than the total of certified workers.

Table 1 TAA petitions, certifications, and participants, FY2003-13

Fiscal year Petitions filed Petitions certified Estimated number of workers covered by a certified petition New participants in training New participants in TRA
2003 3,567 1,894 197,748 43,672 44,000
2004 2,992 1,812 149,705 50,929 81,000
2005 2,644 1,561 118,022 38,207 55,000
2006 2,465 1,444 119,602 37,426 53,000
2007 2,272 1,444 146,838 49,339 47,000
2008 2,224 1,471 126,633 38,189 42,000
2009 4,889 1,888 201,774 58,190 11,111
2010 2,543 2,809 287,026 46,552 14,711
2011 1,391 1,208 104,779 23,493 18,524
2012 1,465 1,153 82,630 13,041 13,343
2013 1,480 1,025 104,158 n.a. n.a.
n.a. = not available; TRA = Trade Readjustment Allowances
Sources: Benjamin Collins, 2014, Trade Adjustment Assistance for Workers, CRS Report to Congress R42012, Congressional Research Service; updated petition and certification data for 2011-2013 from Department of Labor, 2013, Trade Adjustment Assistance for Workers Program, Annual Report FY2013.

By sector, in FY2013 nearly 60 percent of the certified petitions were in manufacturing (see table 2). This figure is down from 88 percent in FY2009, as the number of certified workers in service sectors has since increased.

Table 2 Number of petitions and workers certified by industry, FY2013

  Petitions certified   Workers certified 
Sector Number certified % of total  certified   Estimated number covered by a certified petition % of total estimated workers
Manufacturing 593 57.85%   73,795 70.85%
Professional, scientific & technical services 115 11.22%   5,110 4.91%
Information 90 8.78%   3,437 3.30%
Finance & insurance 74 7.22%   2,402 2.31%
Administrative support, waste management & remediation services 67 6.54%   4,657 4.47%
Wholesale trade 22 2.15%   1,965 1.89%
Retail trade 13 1.27%   1,090 1.05%
Transportation & warehousing 13 1.27%   4,816 4.62%
Construction 10 1.27%   2,035 1.95%
Real estate rental & leasing 9 0.98%   3,122 3.00%
Health care & social assistance 5 0.88%   78 0.07%
Utilities 4 0.49%   555 0.53%
Accommodation & food services 2 0.39%   313 0.30%
Educational services 2 0.20%   61 0.06%
Management of companies 2 0.20%   458 0.44%
Mining 2 0.20%   239 0.23%
Agriculture, forestry, fishing & hunting 1 0.10%   18 0.02%
Other services (excluding public administration) 1 0.10%   7 0.01%
Total 1,025 100%   104,158 100%
Note: Sector category based on the North American Industry Classification System (NAICS).
Source: Department of Labor, 2013, Trade Adjustment Assistance for Workers Program, Annual Report FY2013.

In terms of program outcomes, in FY2014, more than 75 percent of TAA participants gained employment within 6 months of completing the program, while 90 percent of those workers had retained their jobs 6 months later.5 These figures are generally in line with previous years.

Proposed Changes to TAA

The new TAA program would cap total spending at $450 million annually through 2021, subject to certain requirements.6 For context, this represents a cutback in assistance based on larger caps of $575 million in 2011 and over $600 million in 2009.

As mentioned, new TAA provisions would reinstate several of the benefits contained in the 2011 provisions (for a comparative summary, see Collins 2015, table 1). This is particularly important for eligibility criteria in two respects: (1) dislocated workers in service sectors would again be eligible; and (2) dislocated workers would again be eligible if affected by trade from two large non-FTA trading partners, namely China and India. By reinstating the expanded eligibility criteria, the DOL estimates an additional 24,000 to 30,000 workers per year might be covered under TAA.7

Workers affected in services. Manufacturing faces the brunt of import competition and continues to comprise the majority of TAA petitions, but certified workers in services have been expanding. Before eligibility was discontinued in 2014, workers in services accounted for nearly half of the certifications issued in FY2012 and FY2013. As a result of the 2014 restriction, an estimated 17,500 workers were denied potential coverage.8

Workers affected by non-FTA trade. Since 2003, US total two-way trade has nearly doubled (in real terms), and a large component of this trade is with non-FTA partners. Under previous programs, when such coverage was available, the DOL issued more than 3,500 certifications covering an estimated 253,334 workers.

Conclusion

In sum, the TPP will deliver benefits for the United States, but TAA is needed to assist those who lose from globalization, whether or not the TPP is ratified. TAA is a small but highly worthwhile program, especially considering that the overall US safety net for unemployed Americans is not generous by European or Canadian standards. Congress should renew TAA as an important part of the broader trade and investment liberalization initiative.

Notes

1. Public sector workers were indeed covered by the 2009 version of TAA, but the Department of Labor reported that during that time no petitions were received for workers in a public agency that met the criteria, and thus no workers were certified for TAA benefits. As a result, the provision was dropped in the 2011 version of TAA without much controversy.

2. The AFL-CIO contends that TPP will lower wages and eliminate jobs. TPP proponents disagree with both contentions.

3. The Senate passed both TAA and TPA on May 22; it seems likely that the House will vote on TPA on June 12.

4. Alternatives include higher penalties on delinquent and evasive taxpayers. See, “Rules Convenes Wednesday Meeting On Trade Bills; TAA Offset Addressed,” Inside US Trade, June 10, 2015,(accessed on June 10, 2015).

5. Based on data from the Trade Adjustment Assistance Congressional Packet.

6. See the Senate report summary of the TAA, “An Original Bill to Extend the Trade Adjustment Assistance Program, and for Other Purposes,” May 12, 2015.

7. US Department of Labor.

8. The new TAA package will also require that those denied petitions, filed after January 1, 2014, be reconsidered for certification under the new expanded eligibility.

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