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Helping Globalizationís Hardest Hit

Author: Lee Hudson Teslik
Updated: October 1, 2007

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The United Auto Workers hadn’t staged a national walkout in nearly three decades, so the union’s September 2007 strike against General Motors was no small event, even if it lasted only two days. If the strike secured a “model deal,” as the Washington Post put it, it also highlighted the intense fears of U.S. workers over their uncertain role in a globalizing economy. Presidential candidates, too, seem on edge about trade, as do a growing number of U.S. businesses. As a recent Foreign Affairs article notes, while globalization has brought “huge overall benefits,” its convulsive job-market side effects also spur protectionism and fears over falling wages.

With these concerns in mind, Congress is studying proposals to expand the laws that provide aid for U.S. workers adversely affected by trade deals. The legal framework currently in place to assist these workers, called Trade Adjustment Assistance, or TAA, expires September 30. This system offers assistance to eligible trade-affected workers as they seek new jobs. The current $1.3 billion TAA system provides money for training displaced workers in new fields of work; it also pays for job-search assistance and some allowances to ease relocation costs. But a number of lawmakers criticize the system for not covering all the workers affected by trade, and for not providing enough assistance for those workers hardest hit.

The push to revise TAA comes from opposite parties and opposite sides of the country—two senators, Max Baucus, a Democrat from Montana, and Olympia Snowe, a Maine Republican, lead the effort (WSJ). Baucus and Snowe recently devised a bill aimed at expanding the field of workers covered by the legislation, bringing service-industry workers under TAA’s umbrella (Reuters). In addition, the revisions facilitate expanding coverage to newly affected businesses by allowing authorities to make entire industries eligible for assistance, rather than running the certification process business by business.

The proposed changes to TAA would also initiate a limited wage insurance program, the need for which is examined in a new Council Special Report by University of Chicago scholar Robert J. LaLonde. LaLonde notes that most displaced workers come from low-income jobs and are able to find new work with similar wages. But he finds that a small subset of mid-career, middle-class workers faces the prospect of substantially reduced salaries over a long time frame. LaLonde encourages focusing wage insurance programs on this subset—the roughly 250,000 U.S. citizens he estimates will face a sustained wage hit of 20 percent or more. LaLonde also encourages limiting benefits to provide incentive for workers to keep looking for higher-paid jobs.

None of this comes cheaply, of course. The Baucus-Snowe amendments will increase the price tag of TAA by an estimated $4 billion over the next five years, and optional additional expenses could cost up to $1.7 billion on top of that. LaLonde estimates his proposal would cost $3 billion to $4 billion per year, but also recommends initiatives to help offset these expenses, such as drawing funds from overlap in existing unemployment insurance programs. Some economists say this would be a small price to pay for restoring public faith in globalization.

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