The Efficacy of Trade Adjustment Assistance in Targeting and Mitigating the Effects of Trade Shocks in Local Labor Markets

Abstract

Decades of empirical and theoretical economic research strongly assert that trade liberalization leads to unambiguous societal welfare gains. Yet a growing body of literature also establishes that these gains are not evenly distributed throughout members of society. In fact, depending on one’s geography, skills, or occupation, free trade can lead to significant job or wage loss. The principal U.S. policy targeted at helping to mitigate these effects and aid those who are suffering from these negative distributional consequences is Trade Adjustment Assistance (TAA). This paper builds on the existing literature on TAA and studies the extent to which TAA funding and benefits go to individuals experiencing a growth in exposure to foreign imports. Specifically, I study the period between 1990 and 2007 and look at the period’s rising imports from China. Using measures for increased Chinese import exposure per worker prepared by Audor, Dorn, and Hanson (2013) which exploit the heterogeneity of local labor markets, I calculate the link between increased exposure and conferral of TAA benefits. My analysis finds a strong link between Chinese import exposure growth and increases in TAA petition approvals and eligible worker counts. In particular, every $1,000 rise in this import exposure measure yields an additional approved TAA petition. Each petition covers an average of 90 workers. As expected, during this time period, over 95% of approved TAA petitions are in the manufacturing sector. However, industries within manufacturing are heterogeneous in their TAA petition approval rates and number of impacted employee counts. Ultimately, I conclude that TAA is effective at finding and approving petitions for workers in areas that see greater increases in import exposure. More research with a greater access to long-term TAA participant wage outcomes is needed to test whether or not individuals in these heavily impacted regions experience the same benefits of TAA participation as those in less impacted areas.