THE NORTH-SOUTH
AGENDA
PAPERS • F O RT Y- T H R E E
F E B R U A RY 2001
F REE TRADE AND WORKER
DISPLACEMENT : THE T RADE
ADJUSTMENT A SSISTANCE ACT
AND THE C ASE OF NAFTA
Jerry Haar and Antonio Garrastazu
Trade liberalization, and NAFTA in particular, have increasingly
become contentious domestic political issues in recent years. The
debate over U.S. job gains and losses due to international trade
rages relentlessly. At the same time, as U.S. Labor Secretary Elaine
Chao points out, the “new economy is ‘deconstructing’ work…,”
bringing sweeping changes to the workplace, with dramatic shifts in
sector and industry competitiveness and the required skill sets of
workers.
For those who have been negatively affected by trade and
investment shifts, the authors seek to answer the following
questions:
• How has the U.S. government addressed worker displacement
through trade assistance adjustment programs?
• How satisfied are organized labor and Congress with these
programs?
• What appropriate responses should government, labor, and
business consider to bolster worker displacement assistance,
retraining, and competitiveness?
A PUBLICATION
OF
THE
The Dante B. Fascell
North South Center
U N I V E R S I T Y
O F
M I A M I
F REE TRADE AND WORKER DISPLACEMENT :
THE T RADE A DJUSTMENT ASSISTANCE ACT
AND THE C ASE OF NAFTA
Jerry Haar and Antonio Garrastazu
The Dante B. Fascell
North South Center
U N I V E R S I T Y
O F
M I A M I
1500 Monza Avenue, Coral Gables,
Florida 33146-3027
NORTH-SOUTH AGENDA PAPERS • NUMBER FORTY-THREE
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February 2001
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THE TRADE
F REE TRADE AND WORKER DISPLACEMENT :
A DJUSTMENT ASSISTANCE ACT AND THE C ASE
OF
NAFTA
Jerry Haar and Antonio Garrastazu
T
rade liberalization, a fundamental feature of
U.S. economic policy since the end of the
Second World War, has increasingly become a
contentious domestic political issue during the last
decade. Proponents and opponents of free trade
transcend political party affiliation, industry, occupation, geographical locale, income level, age, and
other socioeconomic and demographic factors. In
addition, the U.S. public and its leaders for the
most part hold qualified, mixed, or inconsistent
opinions about trade liberalization and the larger
and rapidly increasing phenomenon known as
globalization. In a February 9-14, 2000, nationwide
poll conducted by Princeton Survey Research
Associates, a majority of respondents (64 percent
compared to 27 percent) stated that free trade
with other countries is good for the United States.1
On the other hand, an NBC News/Wall Street
Journal poll several months later asked interviewees to respond to the following statement:
“Foreign trade has been bad for the U.S. economy
because cheap imports from abroad have hurt
wages and cost jobs here at home.” Forty-eight
percent of the respondents answered that it has
been “bad” and 34 percent “good.”2
Recent events, such as the demonstrations, disruption, and derailment of the Millennium Round
of the World Trade Organization (WTO) trade
talks in Seattle, and former President Clinton’s failure to secure fast-track negotiating authority from
Congress vividly illustrate a serious and significant
commitment by a wide range of disparate interests
to stop or even roll back the processes of trade
and investment liberalization and economic integration.3
Anti-trade groups cite “lost jobs” due either to
imports or to plant relocation as the most compelling reason to reject further trade liberalization.
This argument, which has some validity, served to
rally the forces – including many environmentalists — against one of the most controversial trade
acts in the last half century: the North American
Free Trade Agreement (NAFTA). The accord, now
in its sixth year, passed with the inclusion of labor
and environmental side agreements.
The purpose of this paper is threefold: to
examine how the U.S. government has addressed
worker displacement due to NAFTA through two
programs, the Trade Adjustment Assistance Act
and the NAFTA-Trade Assistance Adjustment
Program; to assess organized labor’s and congressional satisfaction with these programs; and to
suggest appropriate and effective responses by
government, labor, and business to bolster worker
displacement assistance, retraining, and competitiveness. A short review of relevant literature
appears at the end of this paper.
NAFTA and Employment Issues
N
orth American efforts at broader and deeper
trade liberalization culminated in NAFTA,
which came into effect on January 1, 1994. The
NAFTA accord is a comprehensive trade agreement that improves virtually all aspects of doing
business within North America. NAFTA seeks to
eliminate tariffs completely and removes many of
the non-tariff barriers, such as import licenses, that
have contributed to the exclusion of U.S. goods
from the other two markets, especially Mexico.
NAFTA ensures that investment will not be
coerced by restrictive government policies and
that U.S. investors receive treatment equal to that
of domestic investors in Mexico and Canada. At
the same time, NAFTA’s extensive easing of crossborder rules on services ensures that if U.S. companies do not wish to invest in another country to
provide their services, they are not obligated to do
Jerry Haar is Senior Research Associate at The Dante B. Fascell North-South Center, University of Miami, and the
Center for Human Resources at the Wharton School, University of Pennsylvania, as well as visiting scholar in Wharton’s
Department of Management. Antonio Garrastazu is Program Director of the North-South Center’s Washington, D.C.,
office. The authors wish to thank Peter Cappelli, Harbir Singh, Christian Schneider, Kay Dowgun, Jeffrey Stark,
Kathleen Hamman, José Grave de Peralta, and Pamela Lloyd for their assistance.
2
so. The accord also encompasses sound intellectual property provisions, ensuring that the U.S. competitive advantage in high technology is fully protected. Moreover, NAFTA provides guaranteed
access to government procurement contracts in
Canada and Mexico. 4
The polemic surrounding NAFTA’s impact on
U.S. workers — heated, passionate, and contentious arguments over jobs gained and lost,
wages increased and depressed, and industry
expansion and contraction — has made NAFTA a
lightning rod for political debate and an issue that
continues to be more domestic than international
in nature.
Although no clear-cut picture emerges with
respect to NAFTA and U.S. workers, it is interesting and illuminating to review some of the most
notable findings to date, findings that weigh heavily in the continuing debate on NAFTA and further
trade liberalization, aside from the validity of the
statistics presented by either camp.5
The Clinton administration reported that 2.6
million jobs were supported by exports to Mexico
and Canada in 1998, a 31 percent increase since
1993, and it also contended that over 325,000 jobs
gained were due to NAFTA specifically (United
States Department of Commerce 1999, 3).
Moreover, after six years of NAFTA, job creation in
the three countries has been a general trend.
Since NAFTA was implemented, employment has
grown by 10.1 percent in Canada (1.3 million
jobs); 22 percent (2.2 million jobs) in Mexico; and
over 7 percent (12.8 million jobs) in the United
States.
Acknowledging that imports may have job-displacing effects, citing an estimated 32,000 to
100,000 jobs lost because of NAFTA, the Clinton
administration argued that not all imports displace
American domestic production or jobs and that
some imports provide competitive input to U.S.
production, thereby supporting rather than eliminating U.S. jobs (United States Office of the U.S.
Trade Representative 1997, 19). The report concludes that NAFTA had made a positive contribution to the economy in terms of net exports, GDP,
employment, and investment. The study attributes
the U.S. merchandise trade deficit with Mexico to
that nation’s balance of payments crisis and subsequent devaluation, along with strong, sustained
economic growth in the United States. In addition,
the report cites an administration-commissioned
DRI/McGraw-Hill study and research by the
Federal Reserve Board of Dallas (1999; Gould
A N ORTH-SOUTH AGENDA PAPER • N UMBER FORTY-THREE
1996) and UCLA researchers Raúl Hinojosa-Ojeda
et al. (1996), who conclude that NAFTA has
worked to raise exports to Mexico more than
imports from Mexico. The UCLA study found the
effects of NAFTA on U.S. employment to be “moderately positive.”
Those groups opposed to NAFTA, which
include organized labor, the Economic Policy
Institute, the International Labor Rights Fund,
Public Citizen’s Global Trade Watch, and the Sierra
Club, announced prior to the release of the
Clinton administration study that “for the average
citizen of any of these three signatory countries,
NAFTA has been a failure” (Stevenson 1997). The
NAFTA opponents cite downward pressure on
wages and living standards and a weakening of
workers’ rights and bargaining power.
NAFTA critics assert that, from the time the
accord took effect in 1994 through 1998, growth
in the net export deficit with Mexico and Canada
has destroyed 440,172 jobs (Scott 1999, 1).
Employment effects on men, women, and minority
groups have all been negative, especially in manufacturing jobs — ones that pay relatively high
wages (Rothstein and Scott 1997). As for those displaced workers who succeed in finding new jobs,
new wage rates are likely to be on average 16
percent lower (Farber 1996). New jobs created by
NAFTA are most likely to be in the services sector
— the source of the vast majority of new net jobs
created in the United States since 1993 — where
average compensation is only 77 percent of the
manufacturing sector’s average (Mishel, Bernstein,
and Schmitt 1997). Finally, NAFTA opponents
claim that currency devaluations in Mexico and
Canada, combined with the opportunities afforded
by NAFTA, have led to a surge in U.S. foreign
direct investment in Mexico and Canada. This
investment, in turn, has resulted in “runaway
plants”: a flight to lower-cost production facilities
with excess export capacity (Scott 1999; Public
Citizen’s Global Trade Watch 1997).6 The last point
is highly contestable, however (United States
Office of the U.S. Trade Representative 1997).
Two recent major studies that eschew
polemics in favor of more value-neutral methods
(Bolle 2000; Hinojosa-Ojeda, Runsten, Depaolis,
and Kamel 2000) examine NAFTA’s employmentrelated performance in a broader and more
dynamic context. According to Mary Jane Bolle,
NAFTA has accelerated trade-related job trends
that were already ongoing. She asserts that,
instead of talking about the effects of NAFTA,
FREE TRADE
AND
WORKER DISPLACEMENT: T HE TRADE ADJUSTMENT ASSISTANCE ACT
which are extremely hard to measure, one should
refer to the effects since NAFTA. By doing so, one
finds that during the last five and a half years
259,618 U.S. workers were certified as potentially
suffering NAFTA job losses. This figure is less than
the number of jobs created nationwide in one
month during the same time period. Her calculations indicate that net U.S. job growth from new
exports to Canada and Mexico exceeds 700,000.
Moreover, NAFTA is responsible for 50 percent of
the 355,000 net job gains in U.S. manufacturing, a
sector that has made a turnaround during the last
five years (Bolle 2000, 8).
In addition, Bolle calculates that job gains and
losses both on a state-by-state basis and by industry have not been a zero-sum game. For example,
three states with the highest jobs losses (Texas,
23,386; California, 14,825; and New York, 17,487)
are also the states with the highest job gains
(175,407; 147,284; and 56,256, respectively).7 On
an industry basis, one finds that the greatest number of certified job losses since NAFTA have been
in precisely those industries where U.S. dollar
exports and growth rates have been among the
highest: electronics, transportation equipment, and
non-electrical machinery. In the communications
industry, for example, NAFTA has had minimal
impact on union members, according to Paul
Anderson of the Communications Workers of
America (CWA). High-end manufacturing, services,
maintenance, and installation are done in the
United States, while low-end manufacturing and
billing are increasingly performed offshore
(Anderson 2000). This confirms findings of analyses by the Federal Reserve Board of Dallas (1999)
that show that the top U.S. exports to Canada and
Mexico and the top U.S. imports from Canada
(excluding commodities) and Mexico fall into the
same product categories in most cases. Gary
Shoesmith’s (1999) in-depth study of the U.S. textile industry argues that, rather than being a major
casualty of NAFTA, the industry is one of its greatest success stories: Productivity, wages, and
exports to Mexico have increased, yielding a $400
million trade surplus for the United States, even
though total employment in production jobs has
declined.8
Seen in a larger context, NAFTA’s overall effect
on the U.S. economy is small, given that foreign
trade accounts for 14 percent of the GDP and
trade with Canada and Mexico accounts for 20
percent of all U.S. trade. Moreover, Bolle emphasizes, “In an economy operating at full employ-
AND THE
CASE
OF
NAFTA
3
ment, trade results in neither net job gains nor net
job losses, only in relocations from less efficient to
more efficient industries” (Bolle 2000).
In the most comprehensive quantitative assessment to date of NAFTA’s employment impact,
Hinojosa-Ojeda et al. (2000) employ a
computable general equilibrium model using
Armington elasticities to measure the degree to
which lower prices would give imports greater
market share.9 They find that the overall pattern
of United States-Mexico trade and investment
began to change radically nearly a decade before
NAFTA with Mexico’s unilateral trade liberalization. (Mexico joined the General Agreement on
Tariffs and Trade [GATT] in 1985, and in 1988,
President Miguel de la Madrid lowered average
tariffs on imported goods from 25 percent to 10
percent.) It is interesting to note that this study
also finds that the lowering of tariffs through
NAFTA has not had a significant impact on the
growth of Mexican exports to the United States;
however, Mexican exports to the United States
have actually grown faster in those sectors that
were not directly liberalized by NAFTA.
Hinojosa-Ojeda and his colleagues (2000) estimate that approximately 37,000 U.S. jobs per year
are “put at risk” by Mexican imports and 57,000
by Canadian imports. Because the U.S. economy
creates more than 200,000 jobs per month and
causes separation of about 400,000 workers per
month from their jobs, trade contributes only a
very small share to potential employment effects.
The researchers point out that “applying more
realistic productivity and demand changes experienced since NAFTA significantly reduces the
potential United States job impacts due to imports”
(2000, 69). Using a partial equilibrium aggregation
function to the four-digit Standard Industrial
Classification (SIC) level, the investigators find
NAFTA’s job impacts to be relatively small and
argue that general macroeconomic policy is far
more significant for employment, as are
economies of scale, technological change, new
investment, and productivity growth.
Regardless of which argument or statistical
data pool one tends to support, it is clear that
NAFTA has produced both job gains and job losses. Given this fact, public policy choices faced by
Congress and the executive branch have focused
on the need to address the inevitable inequities
and negative effects of trade liberalization. The
following sections address the government’s
response to worker displacement by analyzing the
4
principal programs that provide
trade adjustment assistance for
workers whose jobs are lost or
threatened because of international
trade.
The Trade Adjustment
Assistance Program
A N ORTH-SOUTH AGENDA PAPER • N UMBER FORTY-THREE
Table 1.
NAFTA-TAA Certification by Reason,
January 1, 1994-September 28, 1999
Reason for Certification
Production shift to Mexico
Cases
Workers
% of all
Certified
Workers
948
120,888
47
Production shift to Canada
233
23,010
9
he historical roots of trade
Increased customer imports from Mexico 196
22,852
9
adjustment assistance can be
Increased customer imports from Canada 168
14,955
6
traced back to the early 1960s. A
Increased customer imports not identified
major policy initiative of the
by source country
214
27,497
11
Kennedy administration (1961Increased company imports from Mexico 194
26,352
9
1963) was the aggressive pursuit of
Increased company imports from Canada 66
8,802
3
liberal trade policies in an attempt
Increased company imports not identified
to maintain a comparative advanby source country
19
3,419
1
High and rising aggregate imports from
tage on a global scale. An increasMexico and/or Canada
141
11,843
5
ing commitment to trade liberalization, fear of the expanding and
Total Certified
2,179 259,618
100
unprecedented economic and political harmony and interdependence
Source: Mary Jane Bolle, 2000, NAFTA: Estimated U.S. Job “Gains” and
among the European economic
“Losses” by State Over 5 1/2 Years,Congressional Research Service Report 98community, and deteriorating U.S.
782-E, February 2.
balance of payments helped fuel
the “free trade” fire. These issues
policies and foreign imports. Yet, few workers
provided the young administration with the necestook advantage of the program because of the
sary rhetoric to introduce and secure passage of
restrictive TAA eligibility requirement, which stated
one of the most significant pieces of trade legislathat imports had to be a “major cause” of job loss.
tion, still in existence today, since the creation of
It was difficult to prove that job displacement and
the Bretton Woods regime over 55 years ago. In
increased import levels in a worker’s industry
1962, the Eighty-seventh Congress passed the
were directly caused by trade liberalization policies.
Trade Expansion Act by a vote of 298 to 125 in
In 1974, the TAA program was amended and
the House of Representatives and 78 to 8 in the
revised
in an effort to make it more user friendly
Senate, which transformed the way the United
at
a
time
of increasing economic volatility and
States dealt with the issues of protection and
political
uncertainty.
The Trade Act of 1974 signifiimport competition.
cantly altered TAA eligibility by asserting that
imports only had to “contribute importantly” to
job
loss. Under the new law, workers were entiTrade Adjustment Assistance History:
tled to up to 70 percent of their wages,10 greater
Past and Present
funding was allocated for job training programs,
Historically, trade-impacted industries and
and eligibility determination was decided within
workers were compensated via tariff protection
two months. As a result, the number of TAA recipestablished under the Reciprocal Trade
ients skyrocketed from 164,000 to 532,000
Agreements Act of 1934. However, with the pasbetween 1978 and 1980 (Kapstein 1998). The TAA
sage of the Trade Expansion Act of 1962, tariffhad become the “Cadillac of training programs”
based protectionism as policy was discarded in
(Oursler 2000).
favor of compensation in the form of trade adjustDuring the 1980s, two laws were enacted that
ment assistance (TAA). The TAA program provides
served to lower TAA costs while providing greater
weekly cash assistance, known as trade adjustemphasis on and resources for job training. First,
ment allowances (TRAs), via extended unemploythe Omnibus Budget Reconciliation Act of 1981
ment benefits and job training to workers who
reduced TAA benefits to weekly unemployment
have lost their jobs as a result of federal trade
compensation (UC). Eligibility requirements were
T
FREE TRADE
AND
WORKER DISPLACEMENT: THE TRADE ADJUSTMENT ASSISTANCE ACT
revised to stipulate that imports be a “substantial
cause” of dislocation, and training became the
mainstay of the program. In 1988, the Omnibus
Trade and Competitiveness Act made job training
a specific and mandatory requirement as a prerequisite for benefits. The training clause, however,
could be waived by the U.S. secretary of labor if it
were determined that training was neither suitable
nor appropriate.
NAFTA Transitional Adjustment
Assistance Program
In January 1994, the United States, Mexico,
and Canada launched NAFTA, one of the most
controversial pieces of trade legislation ever
passed, creating the largest free trade area in the
world. While NAFTA was expected to provide
immense benefits to all three countries, “fallout”
in the form of job losses and plant relocations
was also expected. As a result, the NAFTA
Implementation Act was passed to expand the
TAA further by creating a transitional adjustment
assistance program (NAFTA-TAAP), offering many
of the same TAA benefits with several new rules
for displaced workers.
NAFTA-TAAP affords benefits to those workers
who have been displaced because of trade with
Canada or Mexico or because of plant or job relocations to either country. NAFTA-TAAP also allows
AND THE
CASE
OF
NAFTA
for job search and relocation allowances. Training
is mandatory, and it must begin within 16 weeks
of job loss or the sixth week after NAFTA-TAAP
certification (16/6 rule). Moreover, training cannot
be waived under any circumstances. Yet, if the
secretary of labor determines that extreme hardship may occur as a result of enrollment, the training deadline may be extended for up to 30 days.
Eligible workers may also choose between TAA
and NAFTA-TAAP programs. From the inception of
NAFTA-TAAP on January 1, 1994, to September 28,
1999, nearly 260,000 eligible workers were certified for NAFTA-TAAP assistance (Bolle 2000)
(Table 1).
Fiscal Year 2000 Authorization
and Funding
The Consolidated Appropriations Act (CAA) of
2000 re-authorized both TAA and NAFTA-TAAP
until September 30, 2001. Although the programs
are funded as entitlements, training is capped. In
fiscal year 1999, TAA benefits and job-related
training totaled $320 million, while those for
NAFTA-TAAP reached an estimated $63 million
(Table 2). In terms of the number of participants,
36,000 TAA and 2,000 NAFTA-TAAP recipients
received TRA assistance, while 22,000 TAA and
8,000 NAFTA-TAAP recipients were enrolled in job
training (Storey 2000). Fiscal year 2000 figures, as
Table 2.
Selected Trade Adjustment Assistance Budget Data by Fiscal Year
TRA
Funding
(US$millions)
Fiscal
Year
1996
1997
1998
1999
2000
2001*
TAA
195
201
200
226
255
248
NAFTATAAP
28
20
22
26
29
27
TRA
Recipients
(thousands)
TAA
31
33
25
36
36
36
NAFTATAAP
2
3
4
2
4
4
5
Training
Funding
(US$millions)
TAA
97
85
97
94
94
94
NAFTATAAP
26
28
30
37
37
37
No. of
Trainees
(thousands)
TAA
32
24
25
22
22
21
NAFTATAAP
2
4
7
8
8
8
Source: James R. Storey, 2000, Trade Adjustment Assistance for Workers: Proposals for Renewal and Reform,Congressional
Research Service IB98023, October 3.
The Consolidation Appropriations Act (CAA) of 2000 re-authorized both the TAA and NAFTA-TAAP until September 30,
2001. Fiscal Year (FY) 2000 figures, as put forth by the CAA, indicate total funding for TAA will be $349 million and $66 million for NAFTA-TAAP.
*FY2001 figures are a reflection of former President Clinton’s budget proposal under present law. The budget has been
approved by both the House and Senate Appropriations Committees.
6
set forth in the CAA, indicate that total funding for
TAA will be $349 million and for NAFTA-TAAP,
$66 million. As the history of TAA and NAFTATAAP reflects, these programs have become institutionalized in mainstream America as the principal vehicle for dealing with the negative effects of
trade liberalization and worker displacement.
Program Rationale
Throughout the 1960s, international trade
constituted only 9.5 percent of the U.S. GDP.
However, by the 1990s, this figure had risen dramatically, to over 20 percent, signaling the arrival
and dominance of globalization as a pervasive
aspect of the U.S. economy (Chimerine, Fooks,
Harig, and Samuel 1998). For the most part, this
explosion has benefited all parties involved: consumers, domestic and international producers,
workers, and participating countries. Free trade
and neoliberal economic policies, however, also
create losers, especially in the short term.
Compensation programs such as TAA and
NAFTA-TAAP serve as a social safety net for individual workers and companies that may be immediately or imminently threatened by free trade.
Following this rationale, the Kennedy administration, and later the Clinton administration, believed
that support for their trade policies required a TAA
and NAFTA-TAAP program. They held to the tenet
that it is the responsibility of the federal government to protect those workers displaced as a
result of a surge in imports by retraining and/or
providing services geared toward reemployment.
Moreover, TAA and NAFTA-TAAP are seen as a
necessary corollary of free trade, prerequisites for
trade liberalization policies to continue receiving
the necessary support from all actors and sectors
involved. No trade package could ever get the
necessary labor backing to be passed by the U.S.
Congress if TAA and NAFTA-TAAP programs were
not in place. Political necessity and viability were
dominant factors in the creation of TAA and
NAFTA-TAAP, and they continue to be paramount
to maintain these programs.
Eligibility for TAA
Qualifying for TAA can be accomplished only
by a petition filed by three or more workers, an
employer, and/or union representatives. The petition must be submitted to the U.S. Department of
Labor within one year of job loss. The Department
A N ORTH-SOUTH AGENDA PAPER • N UMBER FORTY-THREE
of Labor then has up to 60 days to determine
whether import competition was a “substantial
cause” of job loss. Once eligibility is conferred,
the individual must establish his or her benefit
claims with the state agency. Eligibility hinges on
several additional factors: 1) petitioners must qualify for state unemployment compensation, 2) they
must have worked for 26 of the 52 weeks previous to their job loss, and 3) their weekly wages
must have been at least $30. Once these requirements are satisfied, an individual can begin receiving TAA benefits. Organized labor plays an
increasingly important role with regard to the TAA
program because union representatives are the
ones who nearly always tell workers that they
have been affected by international trade and thus
are eligible for TAA benefits. In fiscal year 1999,
for example, 150,096 workers were approved for
TAA eligibility, while 79,602 workers were
deemed ineligible (Storey 2000).
Eligibility for NAFTA-TAAP
The filing of a petition for NAFTA-TAAP is
exactly the same as that for TAA, but there are
several major differences regarding eligibility. First,
unlike TAA, where no state intervention is
required, petitioners must submit a claim to their
state’s governor, who must then determine preliminary eligibility within 10 days. If eligibility is warranted, the governor’s office then forwards the
paperwork to the U.S. secretary of labor, who has
30 days to make a final decision. Once the secretary of labor approves a petition, a certification of
eligibility for worker assistance is issued. If
NAFTA-TAAP assistance is denied, the secretary
then determines whether the individual is eligible
under TAA. Although workers cannot receive TAA
and NAFTA-TAAP benefits simultaneously, they
can apply for both, choosing the program that
better suits their needs. It is important to note that
the governor does not make a determination as to
whether import competition and/or job or plant
relocation to Mexico and Canada was a “substantial cause” of job loss. Rather, the governor’s office
facilitates the process by cutting through the red
tape and expediting access to employment and
information services.
Benefits
TRA benefits, which are the same under both
TAA and NAFTA-TAAP, vary from state to state,
FREE TRADE
AND
WORKER DISPLACEMENT: THE TRADE ADJUSTMENT ASSISTANCE ACT
depending on weekly UC wages. In 1999, for
example, the average weekly TRA benefit was
$202 (Storey 2000), and benefits could be received
for up to 26 weeks after termination of UC benefits.14 If a worker were enrolled in an approved
job training program, an additional 26 weeks of
benefits could be acquired after regular TRA benefits ended. Thus, TRA benefits could last for 52
weeks, or 78 weeks if an individual were in training, totaling 104 weeks if the original UC benefits
were taken into account. Moreover, an allowance
of $800 could be given to a worker who chose to
search for work outside his or her commuting
area, as well as an additional $800 for relocation
expenses.
In summary, both the TAA and NAFTA-TAAP
worker assistance programs have several advantages that help serve workers displaced by international trade:
• Employment services provide counseling,
information, job placement, and other supportive mechanisms to guide workers who
have lost their jobs.
• Training is designed to prepare workers for
new careers, providing greater opportunities
for occupational growth and earning potential.
• Weekly cash benefits enable workers to
adapt to their new situation, while enabling
them to seek employment at or above their
previous level.
• Job search and relocation allowances enable
workers to search for work outside their
geographical area, opening up possibilities
they normally would not consider.
There are some valuable and beneficial differences between TAA and NAFTA-TAAP that address
some of the concerns with the original program.
NAFTA-TAAP has earlier and more efficient intervention through the use of employment services, a
shorter waiting period for eligibility determination,
and a mandatory training requirement.
It is widely accepted that the federal government has a moral and ethical responsibility to protect its citizens from policies that significantly
affect their lives in a negative way. Moreover,
Shawn Ricks, of the U.S. Department of
Commerce, points out, “The transition from one
job to another need not be a bad thing, as it may
pay off in the future” (2000).11 The benefits of
TAA and NAFTA-TAAP, therefore, were put in
place to mitigate the immediate harm that trade
AND THE
CASE
OF
NAFTA
7
liberalization may do to certain sectors of the populace. While organized labor agrees with this fundamental tenet of the two programs, it has concerns regarding the structural and operational features of TAA and NAFTA-TAAP.
Labor Perspective
O
rganized labor views globalization and trade
liberalization as facts of life that are unlikely
to be scaled back. Indeed, the mission of the
American Federation of Labor and Congress of
Industrial Organizations (AFL-CIO) is to “bring
social and economic justice to our nation by
enabling working people to have a voice on the
job, in government, in a changing global economy, and in their communities” (1999). Most in
organized labor are opposed to trade rules and
practices as they presently exist; yet, most labor
leaders are willing to engage those with differing
opinions in open dialogue.
Union Views on Globalization and
Trade Liberalization
In contrast with previous leadership, President
John J. Sweeney, of the newly reformed AFL-CIO,
supports international engagement and the opening up of trade. Organized labor holds that participation in the new global economy, however,
should take place only under fair and equitable
rules and regulations, given that rich countries are
distancing themselves from the rest of the world
and leaving many behind. Unions now view globalization and trade liberalization through a different lens, a concept referred to as the New
Internationalism.12
The New Internationalism consists of two elements. First, core international labor standards
must be considered part and parcel of any international trade agreement. Second, sensible financial regulations need to be in place, such as regulations concerning the conditions under which
international loans are granted, to combat the negative effects of globalization. The AFL-CIO argues
that the criteria that should be examined to determine the success of globalization and trade liberalization lie in sustainable development and in the
rules of the agreements.13
Several questions must be considered in evaluating the New Internationalism. Four years from
now, will great progress have been made in
8
achieving sustainable development? How much
will the environment have improved? Will the
FTAA prove to be a better model for international
trade than NAFTA? Organized labor will use the
answers to these questions to evaluate the effects
of globalization and trade liberalization. Although
many in the labor community are skeptical of the
“new world order,” they are trying to adapt so that
they can continue to advocate for and protect the
rights of workers.
Organized Labor and TAA/NAFTA-TAAP
Leaders of organized labor value the TAA and
NAFTA-TAAP programs but would rather not have
them in the first place. They reason, “Why should
we lose jobs to international trade?” At face value,
organized labor prefers TAA to the NAFTA-TAAP
because of the restrictive training features of
NAFTA-TAAP (the 16/6 rule), as previously
described.
According to organized labor leaders, the elements crucial to the program’s effectiveness are
counseling and adjustment. Suffering from the
absence of such facilities, El Paso, Texas, has
become the “poster child” of what is wrong with
the system. In that city, a great many people
earned their living in the apparel industry, including self-employed workers in the rural areas. After
shifts of production across borders occurred, families were left devastated, unable to sustain themselves. As there were not adequate job relocation
or training centers to handle the large number of
unemployed workers, the federal government provided El Paso with $30 million in an effort to help
families get back on their feet. Organized labor
representatives argue that families cannot cope
with the devastation of having their lives turned
around so abruptly without some sort of accessible and effective counseling. Sound mechanisms
must be in place to help people throughout the
adjustment process.
Organized labor leaders oppose the elimination of TAA and NAFTA-TAAP, maintaining that it
is the responsibility of the federal government to
continue such policies. They view income support
as essential because it affords displaced workers
the necessary means (that is, training) to acquire
better jobs, but they say that the programs fall
short of assisting and compensating workers who
have been displaced due to the government’s
trade policies. In fact, they view the TAA and
A NORTH-SOUTH AGENDA PAPER • N UMBER FORTY-THREE
NAFTA-TAAP as “modest but necessary assistance”
(Donahue 1995).
Labor and Changes to
TAA/NAFTA-TAAP Legislation
The AFL-CIO recommends consolidating the
best of both programs: In the case of TAA, shifts
of production (movement offshore) should be
included, while the 16/6 rule of the NAFTA-TAAP
should be eliminated. Both Gregory Woodhead
(2000) and Jane McDonald-Pines (2000) of the
AFL-CIO stress that the welfare model has become
part of the job-training model, in that many displaced workers seem to take the first job that
comes rather than one for which they have been
trained. Woodhead and McDonald-Pines propose
increasing the amount of income support, which
would alleviate much of the responsibility of the
already burdened states, and reforming the outreach mechanism necessary to provide accurate
information. Labor insists that inadequate outreach
damages potential workers who are not aware of
the program and, as a result, are denied the
opportunity of participating. By addressing these
issues via appropriate legislation, organized labor
believes that TAA and NAFTA-TAAP will better
serve those it was intended to help.
Congressional Perspective
T
he U.S. congressional perspective on TAA and
NAFTA-TAAP historically has been more
diverse and fluid than that of organized labor.
However, while ideological and partisan differences have threatened both programs periodically,
the fundamental rationale—to assist those harmed
by trade liberalization—has never been seriously
challenged. The U.S. Congress, the sole authority
on TAA and NAFTA-TAAP legislation, has voted to
maintain the two programs throughout their 38year history.
TAA Elimination
In the 1980s, both the Ronald Reagan (19811989) and George Bush (1989-1993) administrations attempted to replace the TAA, arguing that
its functions could be better served by other job
training programs in the form of block grants to
states. TAA elimination efforts have been based on
the assumption that job dislocation due to trade
liberalization does not differ from job losses in the
FREE TRADE
AND
WORKER DISPLACEMENT: T HE TRADE ADJUSTMENT ASSISTANCE ACT
domestic realm and should be dealt with accordingly. TAA advocates and many congressional
leaders, however, disagreed, and they lobbied
against elimination, arguing that such an action
would hurt those entitled to income support and
training under TAA.
In 1994, former President Clinton proposed
gradually phasing out TAA over the course of several years by introducing a comprehensive plan of
assistance to dislocated workers through the
Reemployment Act of 1994. This initiative would
have provided cash benefits and training to a
much broader population than TAA did. Organized labor, however, insisted on retaining TAA as a
separate program, while conservative members of
Congress did not look favorably on the idea of
extending TAA because of its associated costs and
the belief that job training did not provide much
of a payoff vis-à-vis its expense.
Since that time, there have been many
attempts to consolidate a number of job training
programs, including TAA. However, opposition
against merging TAA with other programs has
always been fierce because of TAA’s unique feature: extension of UC weekly benefits after regular
AND THE
CASE
OF
NAFTA
9
benefits have ceased. In 1998, a training consolidation bill was finally passed (the Workforce
Investment Act of 1998), but it did not alter the
TAA and NAFTA-TAAP in any way.
Congressional Satisfaction and TAA
Congressional leaders do not envision eliminating TAA and NAFTA-TAAP due to political
expediency and perceived need. However, that
does not signify that they are 100-percent satisfied
with the programs. Many in the Congress view
TAA and NAFTA-TAAP as too much like unemployment insurance programs because “everyone
miraculously finds a job when the benefits of the
program are about to expire” (Thiessen 2000).
The most positive feature of these programs is the
retraining mechanism in NAFTA-TAAP because it
requires that applicants get training if they want
unemployment benefits. 14
Currently, a TAA for Firms also exists (Table
3), which provides technical assistance to companies that have been hurt as a result of trade liberalization. It is interesting that congressional members receive a vast number of calls from con-
Table 3.
Disposition of Trade Adjustment Assistance
Petitions for Certification and Adjustment Proposals,
Fiscal Years 1993-1998
1993
1994
1995
1996
1997
1998 Average
Total
Certified
Other*
309
253
56
Petitions for Certification
183
160
164
137
19
23
159
148
11
171
159
12
178
167
11
193
177
22
Total
Accepted
Rejected
Pending
Average Firm
Sales (US$Millions)
Average Firm
Employee
Average TAA
per Firm
166
145
14
7
Adjustment Proposals
135
126
123
116
4
1
8
9
107
101
0
6
120
117
0
3
127
118
0
9
130
120
3
7
$12.7
$17.3
$12.6
$8.1
$6.8
$7.3
$10.8
142
158
145
87
91
107
122
$64,260
$58,650
$63,750
$48,600
$48,450
$57,000
$61,285
*Other: withdrawn, terminated, or rejected.
Source: J.F. Hornbeck, 2000, Trade Adjustment Assistance for Firms: Economic, Program, and Policy Issues, Congressional
Research Service RS20210, February 1.
10
stituents in support of the TAA for Firms, more
than for the TAA program itself. As a result,
“members love the TAA for Firms program
because they can site specific examples from companies in their districts that have used and benefited from it . . . on the workers side, however, the
passion is not there” (Thiessen 2000). Some members, such as Representative Charles Rangel
(Democrat, New York), of the House Ways and
Means Subcommittee on Trade, believe that TAA
and NAFTA-TAAP do not address the real problems faced by dislocated workers. Nevertheless,
there have not been many requests from
Democratic members to reform the programs dramatically.
Proposed Changes to TAA
Several congressional proposals have been put
forth in an attempt to modify TAA and NAFTATAAP. Senator Daniel Patrick Moynihan (Democrat, New York) introduced legislation (S.220) on
January 19, 1999, which would reauthorize and
reform various provisions under the current TAA
and NAFTA-TAAP system. This bill would reauthorize TAA until fiscal year 2001, consolidate both
programs, and establish a maximum 40-day time
limit for completion of eligibility petitions.
Moreover, TAA eligibility would also take into
account shifts of production to any foreign country, allow TAA training to be delayed or waived
by the Department of Labor under specific circumstances, and increase the spending cap for TAA
training to an estimated $150 million. A similar bill
(H.R. 1491) was introduced on April 20, 1999, by
Representative Robert Matsui (Democrat,
California) that would re-authorize TAA until 2004.
These proposals were referred to the Senate
Finance and House Ways and Means committees,
respectively. No further action has been taken.
On May 6, 1999, Representative Phillip English
(Republican, Pennsylvania) introduced H.R. 1728,
which advocates other changes to TAA legislation.
H.R. 1728 would authorize TAA and NAFTA-TAAP
through 2003 and extend the time frame required
for workers to petition for eligibility after displacement from one to two years. On June 30, 1999,
Representative Rangel sponsored H.R. 2406, containing many of the same guidelines as the English
bill (except with regard to authorization) and running until the end of 2001. Both bills were referred
to the House Ways and Means Committee.
A N ORTH-SOUTH AGENDA PAPER • N UMBER FORTY-THREE
Representative John Duncan (Republican,
Tennessee) introduced H.R. 2254 on June 17,
1999, proposing that TAA and NAFTA-TAAP be
authorized to include retroactive reimbursement
for training. Job training costs incurred prior to a
trainee’s petition and approval would be covered
by the program. The logic behind Duncan’s proposal is that training would have been authorized
had it commenced after petition approval.
Legislation related to TAA and NAFTA-TAAP
has also been proposed by the U.S. agricultural
sector. On June 15, 1999, Senator Kent Conrad
(Democrat, North Dakota) introduced the TAA for
Farmers Act (S.1222), which would provide up to
$10,000 cash assistance over a 12-month period to
farmers experiencing a loss of income due to a
decline in commodity prices from surges in
imports. Currently, farmers are usually not eligible
for TAA or NAFTA-TAAP benefits because a fall in
prices does not always result in a job loss. In
addition, most farmers own their land, and under
the current system business owners are ineligible
for UC benefits and thus for TAA and NAFTATAAP.
Through H.R. 434, Representative Phillip Crane
(Republican, Illinois), Senator Conrad, and Senator
Charles Grassley (Republican, Iowa) tried to provide assistance to farmers. Although in its final
version H.R. 434 did not extend coverage to farmers, it required the Department of Labor to report
to Congress within a four-month time frame on
the feasibility of such an action, the first of three
minor changes to TAA programs. The second
change was the provision added to H.R. 434 by
Senator William Roth (Republican, Delaware),
requiring the Government Accounting Office
(GAO) to review the effectiveness of state and
federal coordination of programs, including TAA,
UC, and programs included in the Job Training
and Partnership Act and the Workforce Investment
Act. The third change involving TAA was an
extended benefit eligibility period for workers
affected by the decommissioning of nuclear power
plants. Senator Strom Thurmond (Republican,
South Carolina) attempted to include assistance to
dislocated textile and apparel workers, but his
amendment did not become part of the legislation
signed into law on May 18, 2000.
Given that equal numbers of Democrats and
Republicans who have proposed changes to TAA
and NAFTA-TAAP, it is clear that support for these
programs is not partisan, as was the case in 1962
with the passage of the Trade Expansion Act.
FREE TRADE
AND
WORKER DISPLACEMENT: T HE TRADE ADJUSTMENT ASSISTANCE ACT
Even though there have been many cries for
changes in the legislation, no further action will
be taken until fiscal year 2001, as mandated by
S.1386, introduced by former Senator William Roth
(Republican, Delaware). This bill, ratified on
November 3, 1999, extended both programs until
September 30, 2001, thereby silencing further
debate and postponing action until that time.
At the urging of Representative Ken Bentsen
(Democrat, Texas) as a quid pro quo for congressional support of the administration’s China trade
bill, former President Clinton agreed in May 2000
to establish a commission that will help determine
whether current trade adjustment assistance programs need to be modified or completely replaced
with new approaches. It is interesting to note that
the China momentum has given rise to pleas for a
NAFTA-TAAP type program, including job relocation, for those workers displaced as a result of
trade with China. Representative Marcy Kaptur
(Democrat, Ohio) introduced this legislation in the
form of H.R. 4649 on June 13, 2000, and it has
been referred to the House Ways and Means
Committee.
TAA and Trade Agreements: A Caveat
Are trade agreements more likely to receive
support because of the TAA? Clearly, trade liberalization is an extremely sensitive and sometimes
volatile issue in U.S. politics. Political necessity
requires TAA– and NAFTA-TAAP–type programs as
a prerequisite for trade agreements. It is highly
unlikely that congressional and labor leaders
would have supported President Kennedy’s trade
initiative had the administration not proposed TAA
as an integral and essential part of the Trade
Expansion Act of 1962. Moreover, NAFTA would
not have become law had there been no commitment on the part of the Clinton administration to
assist and compensate workers displaced as a
result of U.S. policy and, of course, to include
labor and environmental side accords in the
agreement. In fact, the NAFTA-TAAP became operational just 24 days after former President Clinton
signed the NAFTA Implementation Act.
Republican trade stalwarts in Congress, such
as Senator Roth, Representative Crane, and
Representative Bill Archer (Republican, Texas),
believe that TAA authorization should go hand in
hand with trade liberalization programs, as should
the passage of fast-track negotiating authority.
According to the House Ways and Means
AND THE
CASE
OF
NAFTA
11
Subcommittee on Trade, many Republicans do not
envision TAA and NAFTA-TAAP without fast-track
authority. Still, many other Republicans do not
share that view: “If we link this and fast track
does not go through, then we run the possibility
of not being able to authorize TAA programs,”
according to Christopher St. Pierre, senior legislative assistant to Phillip English (2000). In all likelihood, however, Republicans will not continue to
support TAA unless fast-track negotiating authority
is passed.
Assessing the Trade Adjustment
Assistance Programs
T
he GAO is currently undertaking an assessment of TAA and NAFTA-TAAP programs to
determine what reforms, if any, are necessary.
Indeed, this is the second such study. In 1994,
nine months after NAFTA-TAAP went into effect,
Representative Collin C. Peterson (Democrat,
Minnesota) requested a similar analysis (United
States General Accounting Office 1994).
The 1994 GAO report was critical of the new
program in several ways. First, there was a failure
on the part of the Department of Labor to move
forward with discretionary assistance to help secondary workers affected by NAFTA, workers ineligible for UC, and workers who had not met the
NAFTA-TAAP deadline. When help did come, it
did not arrive in a timely manner. To the dismay
of many in Congress, there is still no mechanism
in place to assist these often neglected and disenfranchised workers. This is an area of critical
importance where changes to the current institutional structure of the programs must be implemented to make them work more efficiently and
effectively. Second, in full solidarity with state
agencies, the GAO criticized the 16/6 rule as too
restrictive, stating that imposing such a deadline
created undue hardship on state agencies in the
processing of individual training assessments. It
remains to be seen how the upcoming GAO
report will assess the current state of affairs,
including why its previous recommendations have
not been implemented or taken into account.
Regardless of the results of TAA and NAFTATAAP evaluations (good or poor), these programs
have become permanent fixtures of U.S. trade and
labor policies. Congressional staffer Todd Funk
noted, “These programs are consistently funded at
adequate and appropriate levels, and they are not
in jeopardy of termination” (2000). Although there
12
indeed may be more optimal criteria (Feenstra and
Lewis 1994) and compensatory schemes for trade
adjustment assistance (Brander and Spencer 1994),
as well as negligible impact of training on future
earnings (Decker and Corson 1995) and other
unintended consequences (Bohanon and Flowers
1998),15 it is highly unlikely that any dramatic
changes in either program will be introduced in
the immediate future.
Policy Reform and
Management Challenges
According to the NAFTA office at the U.S.
Department of Commerce, the TAA office at the
Department of Labor, and the AFL-CIO, many of
the problems with TAA and NAFTA-TAAP stem
from how the programs are structured and implemented at the federal level. Gary Palmquist, legislative director in the office of Representative
Bentsen noted, “One of the biggest criticisms of
the programs is that many that are affected by
trade and eligible for TAA and NAFTA-TAAP do
not know about it. . . . We need to make the programs more effective, identifying and disseminating best practices across the country” (2000).
As federally funded programs administered
locally, TAA and NAFTA-TAAP do not require
states to report to the federal government. Thus,
there is insufficient accountability. States are only
obligated to report the number of people who go
through the process. Lacking cohesion and coordination among states and the federal government,
the programs have not been able to function
effectively. In addition, the Department of Labor
gives each state $30,000 a year for outreach purposes, but most states do not want to admit that
international trade has adversely affected them. In
Mississippi, for example, from January 1, 1994,
through September 28, 1999, there were only four
documented cases, totaling 1,144 workers, of
NAFTA-TAAP certification (Table 4) (Bolle 2000).
Another problem is that the federal government
does not enforce the states’ responsibility for outreach, leaving many eligible workers unaware of
the programs. The key to improving these services
is administrative reform to facilitate timely and
efficient decisionmaking. Such reform is critical,
especially at the state level, so that the programs
can serve displaced workers and businesses more
effectively.
A state-by-state analysis of these issues is
needed to enable federal decisionmakers to evalu-
A NORTH -SOUTH AGENDA PAPER • N UMBER FORTY-THREE
Table 4.
Potential Job Loss by State:
Number of Cases and Workers Certified
by the NAFTA-TAA Program,
January 1, 1994 – September 28, 1999
State
Cases
North Carolina
171
Texas
252
Pennsylvania
193
New York
126
California
124
Georgia
110
Tennessee
109
Indiana
59
Arkansas
48
Michigan
74
Wisconsin
52
Washington
85
New Jersey
69
Alabama
40
South Carolina
46
Virginia
64
Ohio
53
Missouri
67
Florida
72
Illinois
50
Oregon
90
Louisiana
18
Idaho
38
Kentucky
30
Massachusetts
31
Colorado
28
Arizona
30
Minnesota
20
New Mexico
12
Maine
18
Kansas
13
West Virginia
18
Connecticut
11
Mississippi
4
Puerto Rico
2
Utah
13
Montana
24
Alaska
5
Wyoming
19
South Dakota
5
Iowa
9
Vermont
4
North Dakota
4
Maryland
3
Oklahoma
12
Nebraska
4
Nevada
10
New Hampshire
7
Hawaii
0
Rhode Island
0
Delaware
0
District of Colombia
0
Total
2,346
Workers
27,725
23,386
18,663
17,487
14,825
12,457
12,191
9,406
8,993
8,334
7,776
7,351
7,064
6,627
6,551
6,513
6,074
5,984
5,756
5,718
4,907
4,688
3,073
2,904
2,562
2,359
2,054
1,912
1,771
1702
1,364
1,343
1,291
1,144
1,090
1,047
790
780
620
566
454
429
393
390
331
283
257
224
0
0
0
0
259,618
Source: Mary Jane Bolle, 2000, NAFTA: Estimated U.S. Job
“Gains” and “Losses” by State Over 5 1/2 Years,Congressional Research Service Report 98-782-E, February 2.
FREE TRADE
AND
WORKER DISPLACEMENT: T HE TRADE ADJUSTMENT ASSISTANCE ACT
ate the need for reform. The problems of outreach, public information, and human resources
should be dealt with to improve the programs.
One way to do this is by periodic performance
monitoring of the outcomes, which would help
Congress to assess the programs and make necessary recommendations for reform during the
appropriations process.
A training requirement, not a part of the TAA,
should be made mandatory. There is bipartisan
agreement that TAA should not be a welfare program. As it now stands, the NAFTA Implementation Act grants eligibility for the TAA program if
one meets the requirements for NAFTA-TAAP. As a
result, many workers displaced because of NAFTA
have qualified for TAA, making it easier for them
to opt out of training. Making retraining mandatory is the only way that TAA and NAFTA-TAAP can
avoid the stigma of being labeled welfare programs. In addition, TRA benefits should be
amended to include shifts in production, including
but not limited to Mexico and Canada. This would
benefit approximately 8,000 workers, at an estimated cost of $22 million, who are currently
excluded from the TAA and NAFTA-TAAP programs. Former President Clinton’s fiscal year 2000
budget included an important initiative that would
extend eligibility to those workers displaced as a
result of an employer’s moving production any where, not only to Mexico or Canada. It also
called for increasing the training spending cap and
eliminating the operational differences between
TAA and NAFTA-TAAP. The president’s plan would
increase program spending by $47 million for fiscal year 2001. However, no action was taken on
the president’s proposal.
Another severe weakness of the programs is
that TAA and NAFTA-TAAP are separate entities.
To avoid redundancy and expense, the two programs should be consolidated. Consolidation
would also improve the training mechanism, the
true essence of the TAA and NAFTA-TAAP.
Fundamentally, the Department of Labor Office of
TAA, members of Congress, the U.S. Department
of Commerce, and the AFL-CIO all support consolidation.
One grave impediment to the NAFTA-TAAP
program concerns the issue of discretionary assistance. Since the creation of NAFTA, the U.S.
Congress has recommended that the Department
of Labor establish a discretionary program to help
those who have been adversely affected by
NAFTA but do not meet the requirements under
AND THE
CASE
OF
NAFTA
13
NAFTA-TAAP. For example, secondary workers
(employed by suppliers of firms that are directly
affected), workers who do not qualify for UC, or
workers who fail to meet the NAFTA-TAAP training deadlines would be included. The Department
of Labor has failed to implement these guidelines
and has been criticized by Congress and the GAO
for its lack of initiative and foresight on this
extremely important and sensitive issue. Providing
benefits to secondary workers would help close
the discretionary gap, ensuring that those behind
the scenes will be afforded the same opportunities
as other displaced workers. In fiscal year 1999,
former President Clinton’s budget proposed setting
aside $50 million in Department of Labor discretionary funds to deal with the issue of secondary
workers. Unfortunately, this request was not
included in the fiscal year 2000 or 2001 budgets.
The Training Imperative
Income support for workers displaced due to
trade factors is vitally important. Nevertheless, it is
a short-term, stop-gap measure. Occupational
skills training, remedial education, and on-the-job
training yield benefits that are more immediate
and more sustainable for U.S. workers. If one
accepts this argument, then the principal question
that emerges is, “How effective is the training
mechanism?”
Resources allocated for training displaced
workers are substantial. Funding in fiscal year
1999 was $94.3 million for TAA training and $22
million for NAFTA-TAAP, while the number of
trainees reached an estimated 22,000 for the TAA
and 8,000 for NAFTA (Storey 2000). Out of the
216,715 who were certified in the first five years
of NAFTA-TAAP, around 6,000 actually completed
training, according to Gregory Woodhead, of the
AFL-CIO (Woodhead 2000; McDonald-Pines 2000).
The immediate question that arises is, “Why
are the training completion numbers so low?”
Explanations are varied:
• Completion of training is low as a result of
monetary demands on displaced workers
who have family and financial responsibilities.
• A lack of adequate counseling and information impedes workers from receiving the
proper training or even knowing that it is
available to them.
14
• Low training levels are a direct result of the
“older worker” phenomenon. Older workers
may be reluctant to learn new skills and
change careers. Indeed, many cannot fathom
spending a great amount of time in training
when there are no guarantees that training
will enable them to earn as much as they
did before their job loss. More important,
pride plays a major role, in that older workers may not feel comfortable in — and in
some cases may even be offended by —
retraining programs, given their years of
experience within a trade.
• As was mentioned by the TAA office at the
Department of Labor (Beale 2000), training
is a commitment that requires a major sacrifice on the part of a worker. The decision
rests with the individual worker as to
whether to endure short-term hardship in
the hope of long-term benefits.
• Many people complain that not everyone
benefits from training; it must be necessary
for an individual’s career development.
• Another criticism concerns the “one training
rule,” which forbids individuals from switching between training programs. Regardless
of perceived shortcomings, these guidelines
were put in place in an effort to avoid
abuse.
In addition, organized labor argues that low
training levels in the NAFTA-TAAP can also be
attributed to the 16/6 rule. In contrast with TAA
training, which is flexible in terms of a starting
date, NAFTA-TAAP enrollment must occur within
16 weeks of job loss or during the sixth week
after certification. (As mentioned earlier, enrollment may be delayed for up to a period of 30
days if extreme hardship is determined.) The
widely held view among non-labor groups and
individuals is that four months is ample time to
enroll in training, especially in light of the many
public community colleges throughout the United
States. These institutions offer accessible, affordable, and vocationally diverse courses at convenient times.
Admittedly, there is a marked disparity
between workers who are certified and those who
enter training, since too few people stay in training long enough to enjoy the entitlements. While
it is evident that structural and operational deficiencies in the training component of the programs exist, it is also worth noting that recent
hight levels of growth and employment creation
A N ORTH-SOUTH AGENDA PAPER • N UMBER FORTY-THREE
in the United States may also explain low training
enrollment rates, as displaced workers may have
found new employment relatively quickly (Hipple
1999).
Outlook for Free Trade, Worker
Displacement, and Trade Adjustment
Assistance
T
rade liberalization and globalization continue
to travel a circuitous and erratic path. Setbacks
— such as the postponed launch of the WTO
Millennium Round and the failure of the Clinton
administration to win fast-track authority — and
advances — such as passage of the China trade
bill and deepening economic integration in
NAFTA, the Southern Common Market (MERCOSUR), and the European Union — characterize the
march toward a globalized economy.
Collateral effects of this process, most notably
worker displacement, have transformed trade policy
into a largely d o m e s t i crather than foreign policy
issue in the United States. The TAA programs have
been as much a political as an economic
response, a means to respond to public concerns
and opposition while avoiding the adoption of
such punitive tools as increases in tariffs and nontariff barriers. Economist Jeffrey Schott of the
International Institute of Economics pointed out,
“Assistance programs [were] incorporated into
NAFTA legislation to buy some support and to
alleviate some of the dire concerns of NAFTA
critics” (Richards 1997).
The outlook for and debate surrounding trade
liberalization, the scope and depth of worker displacement, and TAA will be shaped by a number
of factors, as discussed in the following sections
of this paper.
Intensification of the Globalization–Wage
Inequality Debate and the Search for
Remedies
As the forces of globalization accelerate and
wage inequality increases (within selected sectors
and industries and among various socioeconomic
groups), the debate over trade liberalization will
intensify. Both politically based and researchbased arguments will be expressed, and polemicists, pundits, the media, politicians, and special
interest groups will weigh in on what has become
an emotionally charged subject. However, as indi-
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cated in the literature review at the end of this
paper, there is no simple link between globalization and wage inequality. Albert Fishlow and
Karen Parker (1999) conclude in Growing Apart:
The Causes and Consequences of Global Wage
Inequality that several interrelated market integration developments — expanded trade and foreign
investment, more rapid technology diffusion, and
changes in labor market structure — all influence
wages. The authors assert that expanded trade
and competition at the global level raise living
standards and create more high-wage jobs. In
Labor Costs and International Trade, Stephen
Golub (1999) reaches the same conclusion. His
data analysis reveals changes in the composition
of jobs but no net job loss in high-wage countries
such as the United States. Consequently, according
to Golub, fears about the ability of industrialized
nations to compete are greatly exaggerated.
In searching for remedies, both those who
assert a linkage between trade and widening wage
inequality (for example, Wood 1994), and those
who hold that the connection is unsubstantiated
(Sachs and Shatz 1996) or weak at best (Richardson 1995) are in agreement on one fundamental
point: that the labor force will respond to the
widening of the premium on education and training by boosting the investment in education (for
example, returning to school part-time to upgrade
skills or learn new ones), thereby narrowing the
inequality gap in the future (Mincer 1995).
Continuing Trade Liberalization
Sequenced implementation of remaining
NAFTA provisions, an expanded Caribbean Basin
Initiative (CBI), permanent normalized trade with
China, and further trade liberalization agreements,
including WTO services and agricultural provisions of the GATT Uruguay Round, will provide
challenges as well as opportunities for a number
of U.S. industries and sectors. Consequently, new
groups of displaced workers will seek TAA and
NAFTA-TAAP adjustment assistance. Moreover,
both the new groups of claimants and the number
of those from sectors and industries that have
already been negatively affected will increase dramatically should the U.S. economy experience a
slowdown or, worse, a recession.
If a significant recession occurs, labor, public
interest groups, and members of Congress will
give TAA and NAFTA-TAAP a higher priority and
bring pressure to remedy organizational and
AND THE
CASE
OF
NAFTA
15
administrative deficiencies quickly and move to
increase funding for these programs. Since public
sector–sponsored training programs have traditionally delivered far less than promised, failing to
integrate participants into the economic mainstream (LaLonde 1995; Wilson 1995), the reform
task will be a daunting one. Stalwarts of the globalization backlash, including anti-trade isolationists
of the right and the left, will invariably rally to
suspend existing trade agreements and prevent
the enactment of new ones, while at the same
time lobbying to aid displaced workers.
Organized Labor’s Renaissance
During the past several years, organized labor
in the United States has experienced resurgence in
its visibility, credibility, influence, and membership. Union membership rose by more than
265,000 in 1999, the largest annual increase in 20
years. Labor-sensitive issues, such as trade and
wages, widely perceived “excess” corporate profits, the pro-labor Clinton-Gore administration, and
the energetic and popular leadership of AFL-CIO
President John J. Sweeney, have all invigorated
the labor movement. Despite labor’s defeat when
it opposed the China trade bill, victories on issues
such as the WTO Millennium Round and fast-track
authority have strengthened labor’s political power
and influence.
In addition, labor leaders have altered their
positions on selected issues and broadened them
on others. For example, after NAFTA, labor found
it difficult to insist that Mexico raise wages across
the board and targeted, instead, satisfactory working conditions and core labor rights (Weintraub
2000).16
Organized labor has also broadened its advocacy to include environmental and immigration
issues. Labor’s stance on immigration, in particular, denotes a significant change, as labor traditionally has opposed liberal immigration policies
and championed the federal I-9 process, a 1985
AFL-CIO resolution requiring employers to verify
the eligibility of people to work in the United
States. In recent years, organized labor has advocated full protection in the workplace for all
workers — immigrant, native-born, documented,
and undocumented — as well as repeal of I-9 and
adoption of a new amnesty program to provide
permanent legal status for undocumented workers
and their families. 17 While the negative impact of
recent waves of immigrants on wages, employ-
16
ment, and social services has been well documented and prominently publicized (Borjas 1999;
Borjas 2000), there are empirical arguments that
support the benefits of liberal immigration policies
(Fix and Passel 1994; Simon 1995; LaLonde and
Topel 1991; Abowd and Freeman 1992).
Regardless of one’s policy position, it will be
interesting to see whether organized labor can
maintain its altruistic stance during a downturn in
the U.S. economy.
Expanded Union Role in Skill Building
Organized labor has come to the realization
that globalization and trade liberalization will
require higher level skills and increased training
and is committed to help workers meet the
demands of the new economy. Unions such as the
Communications Workers Association (CWA), the
United Auto Workers (UAW), and the International
Association of Machinists and Aerospace Workers
(IAM) advocate training initiatives for their members to keep them competitive and encourage
employers to provide education incentives. Don
Treinen, co-director of the Alliance for Employee
Growth and Development, points out, “Worker
training is the only thing labor and management
don’t fight over tooth and nail, for it serves both
their interests” (2000). 18 Workplace education and
training initiatives have become organized labor’s
paramount mission. In fact, the largest pool of
funds in the labor movement is dedicated to maintaining and upgrading skills (Audie-Figueroa
2000). The only other organization that provides
more services and workplace education than
unions is the U.S. military (AFL-CIO Internet home
page).
The recent success of unions in organizing
white-collar workers, for example, at Boeing and
Microsoft, will continue because workers in the
new economy have legitimate concerns and
demands that need to be met. Because this group
of workers is educated, one can expect education
and training benefits to be an important part of
their union’s contract with management.
In 1999, the government established a joint
management-worker committee, the Leadership
Group on Twenty-first Century Skills, to help
determine the most effective ways for workers to
acquire the skills needed in the new millennium.
The board presented its findings to the vice president in a report entitled Skills for a New Century:
A Blueprint for Lifelong Learning.19 The commit-
A NORTH-SOUTH AGENDA PAPER • N UMBER FORTY-THREE
tee recommended that that the best way to
achieve the goal of preparing workers for the
twenty-first century was through collaborative
efforts and partnerships among students, workers,
teachers, employers, unions, and governments.
The development of new models of education,
training, technology applications, and networking
and information sharing are key to providing a
competitive edge to unions, firms, and workers in
a globalized economy and labor market (Goldberg
2000).
Intensified Workplace Education
and Training by Business
Another key factor that will affect worker displacement, lessening and even preventing it in
some cases, is corporate education and training.
The private sector’s commitment to on-site and
off-site skills development for its workers is steadfast.20 A recent industry survey of firms with 100
or more employees reported that training budgets
exceed $62.5 billion (Training Magazine 1999).
This figure does not include the huge hidden
expense of employee training — the value of the
salaries people receive when they are in training
rather than working at their jobs. (Ninety percent
of all corporate training occurs on paid time.)
Companies are cognizant of the need to develop
their employees’ technical skills, given the rapid
technological change that continues unabated. An
emphasis on performance improvement, the
growth of integrated high-performance work systems, and advances in technology-based training
delivery will boost the competitiveness of firms
and their workers (Bassi, Cheney, and Van Buren
1997).
Nevertheless, the challenge of workforce education for companies is a daunting one, given the
significant number of U.S. workers with minimal
skill levels. A 1999 Conference Board report
stated, “Global competition, the diffusion of technology, and the emergence of knowledge-based
industries have created a workplace skills gap that
threatens the United States’ capacity to grow and
compete on the world stage” (Bloom and Lafleur
1999, 13). The researchers of this Conference
Board survey of 550 firms found that more than
40 percent of the U.S. workforce and more than
50 percent of high school graduates do not have
the basic skills to do their job, and 16 percent of
college graduates have inadequate skills. More
than 25 percent of the CEOs surveyed reported
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shortages of key skills as the top challenge facing
their firms. Globalization, technological change,
deregulation, and trade liberalization are putting
pressure on organizations to change. Workplace
education programs are the answer for many.21
The Conference Board report notes that failure to
act will limit companies’ ability to grow and compete because human capital will be limited.
The Changing Workplace
After more than a decade of corporate restructuring, downsizing, and reengineering, the relationship between employees and employers has
undergone a dramatic shift. In The New Deal at
Work, Peter Cappelli (1999) comprehensively
chronicles the genesis, dynamics, and implications
of the changing workplace. He argues that the pillars of the U.S. employment system — job security, long-term employment, advancement, and stable pay — are relics of the past.22 Instead, new
employment relationships have emerged in which
outsourcing, temporary staffing, short-term contracts, and other market-based transactional
arrangements come into play. Market forces and
tight labor markets have shifted the power in
employee-employer relationships to the employee
— provided, of course, that the employee
(whether blue-collar or white-collar) has a skill set
that is in high demand. Under these conditions
and with the demise of corporate loyalty, skilled
workers have become more mobile; they have
also become more demanding, especially for
advanced education and training.
For less skilled workers, the situation is much
different. Their bargaining position, occupational
mobility, and employment security are extremely
limited. Moreover, with the dynamic growth of the
“new economy” and the resurgence of traditional
industries via technology-based applications, the
skills, earnings, and wealth gaps are widening dramatically. Since 1986, the poverty rate among fulltime, low-wage workers has grown by 40 percent
(3 million workers), yet the economy has expanded by 30 percent (Barrington 2000). Income
volatility; layoffs, including displacement; and the
growth of the low-paying retail and service sectors, where labor is abundant and wages are
depressed, are disturbing features of the current
economic environment.
Generational changes in the workforce also
affect worker displacement. Younger blue-collar
workers have a different approach to work from
AND THE
CASE
OF
NAFTA
17
their elders, which has created friction on the
shop floor (Aeppel 2000). In contrast to older
workers, younger workers prefer to work longer
hours for fewer days, value balance between work
and leisure in their lives, and embrace technology
and continued training to enhance their occupational competitiveness. These younger workers
would find it far easier to secure new employment
at comparable wages should they be displaced.
Continued churning within labor markets continues to displace workers. Companies bemoan
labor shortages at the same time that they
announce record layoffs (Weinstein 1999). For
example, AT&T announced in 1996 that it would
lay off 40,000 workers. Later that year it began hiring people, particularly in its cable operations,
resulting in a net gain to its workforce by the end
of the year. Computers, electronics, and other fastcycle, technology-based businesses lay off workers
en masse within certain divisions and business
units, while they increase staffing en masse elsewhere in the company. High layoffs and high job
creation are the paradoxes of the new economy.
Conclusion
T
rade liberalization, globalization, and sweeping
changes in the structure and organization of
work continue unabated, producing positive
effects on many workers and negative effects on
others. Even in an economy in which job creation
exceeds job displacement, the replacement
dynamic does not operate on a one-for-one basis.
A laid-off metal worker cannot fill a job vacancy
for a software programmer. In the case of NAFTA,
although employment effects have been modest
over all, there have been significant job losses in
certain sectors, such as apparel and electronics.
Moreover, as global, regional, and bilateral trade
liberalization initiatives grow, expand, and deepen, one can expect an increase in the aggregate
number of workers threatened with job loss in
selected sectors of the U.S. economy.
Two programs that target displaced workers
— TAA and NAFTA-TAAP — have produced a
mixed record of accomplishment. Neither
Congress nor organized labor is fully satisfied with
these programs, nor are they very dissatisfied.23 A
score of reforms have been proposed to address
the administrative and operational shortcomings of
the programs, and it is expected that the new
Congress will enact measures to improve signifi-
18
cantly the federal government’s response to worker displacement due to international commerce.
While government programs for displaced
workers may offer a remedy for worker displacement, they are not a cur e. Preventive medicine, as
the adage argues, is the best sort of remedy. In
this case, the solution is continuing education and
training: “Increased investment in schooling and
job training, possibly combined with compensatory adjustment assistance for workers most hurt by
trade shocks, are likely to be the most effective
policy responses to recent shifts in the international trading environment” (Sachs and Shatz 1996,
239).
Fortunately, many private companies and
labor organizations are responding to the basic
education and the technical skill requirements of
an increasingly competitive global economy.24
These efforts, along with effectively delivered TAA
and NAFTA-TAAP programs, can help displaced
workers adjust to the realities of the market.
However, in the final analysis, it is up to the individual worker to recognize the irrefutable fact that
one should strive to gain control of one’s occupational destiny through a lifetime commitment to
continuing education and training — through a
A NORTH-SOUTH AGENDA PAPER • N UMBER FORTY-THREE
corporate or union program, community college,
trade school, adult education center, university, or
self-directed study.
As illustrated by the case of NAFTA, free trade,
despite the many benefits it brings, also produces
worker displacement. Nonetheless, government,
business, and labor responses to this collateral
effect of trade liberalization signify a growing
commitment to providing a more secure future for
those U.S. workers who bear the social costs of
globalization.
Future research and analysis should focus on
how to make trade adjustment assistance programs more effective programmatically and financially and determine the optimal structure and
associated costs of programs to aid workers displaced by trade and production relocation beyond
Mexico and Canada.
As U.S. Labor Secretary Elaine Chao points
out, “The new economy is ‘deconstructing’
work.… As we invest in criticial job training, we
are giving workers the bargaining power they
need to custom-design their jobs around their
lives — instead of the other way around” (U.S.
Senate 2001).
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R EVIEW
T
OF
AND THE
CASE
OF
NAFTA
19
R ELEVANT L ITERATURE
he trade and labor nexus, in which worker
displacement has emerged as an increasingly
important issue during the last six years, has been
analyzed extensively by economists (Thygesen,
Kosai, and Lawrence 1997; Burtless 1995) and
continues to be a topic of vital academic and public policy interest (Rodrik 1997; Burtless,
Lawrence, Litan, and Shapiro 1998; Golub 1999;
Destler and Balint 1999). A review of the relevant
literature on international trade, wages and earnings inequality, and firm behavior will provide a
deeper context and greater insight into the
dynamics of worker displacement and trade
adjustment issues.
Richard Freeman, in his classic paper, “Are
Your Wages Set in Beijing?” (1995), poses the
question of whether, in a global economy, wages
or employment of low-skilled workers in industrialized nations will be determined by the global
supply of less-skilled labor rather than by domestic labor market conditions. He examines and critiques both factor price equalization and factor
content analysis. 25 He dismisses Edward Leamer’s
(1996) endorsement of factor price equalization,
siding instead with its critics, most notably Jagdish
Bhagwati and Vivek Dehejia (1994) and Victor
Norman and Anthony Venables (1993). Although
Freeman is more inclined to accept the underpinnings of factor content proponents (Borjas,
Freeman, and Katz 1992; Sachs and Shatz 1994,
Cooper 1994; Wood 1994), here, too, he voices
reservations similar to those expressed by Robert
Lawrence (1994), Alan Deardorff and Dalia
Hakura (1994), and Ana Revenga (1992).
Freeman concludes that trade matters, but it is
not all that matters, nor is it the primary cause of
observed changes. He cites as part of his argument the study by Eli Berman, John Bound, and
Zvi Griliches (1992) that found that trade is not
the prime cause of the decline in demand for the
less skilled. Employment among this group has
fallen in all sectors. Freeman asserts that, as more
low-skilled workers in industrial nations find work
in the non-traded goods sector, the potential for
imports from developing nations to reduce their
employment or wages should diminish (1995).
Indeed, pay in the non-traded goods sector is
determined by the domestic economy. Wages and
employment will not be dominated by trade
agreements such as NAFTA in either a notably
negative or positive way. Other factors of greater
importance will rule the day: technological
change, political developments, educational and
training policies, union activities, compensation
policies of firms, and welfare programs and related social policies.
Three important studies on trade, wages, and
the relative importance of trade to the U.S. economy reinforce Freeman’s conclusions. J. David
Richardson (1995) finds that the United States and
other Organization of Economic Cooperation and
Development (OECD) countries will continue to
experience a shift in structural unemployment as
the share of manual and production worker jobs
declines.26 In addition, the coincidence of
increased trade and investment with increased
wage inequality does not prove that one caused
the other. Richardson cites changes in many other
factors, including technology, demographics, regulation, and unionization, as having a strong impact
on wage inequality.
Examining worker power and the effects of
productivity, inflation, unemployment, and global
trade on wages, Thomas Volgy, John Schwarz, and
Lawrence Imwalle (1996) conclude that, as long as
labor’s bargaining power in the United States
remains weak, growth in productivity will not
translate into increases in real wages for most
workers. Douglas Irwin (1996) attempts to place
the trade-labor-wages debate in a historical context, comparing U.S. involvement in the world
economy in the late twentieth century with that in
the late nineteenth century. He asks the question,
“Does America engage in significantly more trade
now than it did a century ago?” His statistical
assessment reveals little change in the export
share of the gross domestic product (GDP) and
finds the size of the share, both then and now,
relatively small compared to the amount of attention trade receives in the media and in public policy circles. Only agriculture, mining, and manufacturing produce significant merchandise goods that
are included in standard trade statistics.27 The one
notable development, in Irwin’s opinion, is that
the depth and diversity of trade and capital market integration are much greater today than in the
past.
While most economists agree that free trade
improves efficiency and boosts aggregate welfare,
they are not unanimous on the level and distribu-
20
tion of losses experienced when trade barriers fall
(Burtless 1995). Jagdish Bhagwati and Marvin
Kosters (1994) attribute a minor role to trade in
pushing down wages of less-skilled U.S. workers,
citing technological change as the key factor. On
the other hand, Jeffrey Bergstrand et al. (1994),
George Borjas and Valerie Ramey (1994), and
Adrian Wood (1994) cite imports as a main reason
for income inequality. Wood even ascribes higher
unemployment in Western Europe and North
America to manufacturing exports from developing nations. Edward E. Leamer (1996) agrees that
international trade with low-wage developing
countries contributes to declining real wages and
high rates of unemployment among low-skilled
workers in industrial nations. However, he identifies technological change, educational failures, and
immigration as contributing factors as well.
Empirical assessments by Paul Krugman and
Robert Lawrence (1994), John Bound and George
Johnson (1992), Robert Z. Lawrence and Matthew
J. Slaughter (1993), Jeffrey Sachs and Howard
Shatz (1994), Sachs and Shatz (1996), and Robert
Feenstra and Gordon Hanson (1996) argue that
lower trade barriers do not explain declines in relative wages of less-skilled workers; that imports
continue to make up a very small percentage of
the GDP, and that trade, therefore, has played a
very small role in the trend toward increased
earnings inequality.
Locational factors are also relevant to the
debate on worker displacement, trade, and
income inequality. Using the Heckscher-OhlinSamuelson general equilibrium model, Edward E.
Leamer (1996) ascertains that price declines of
labor-intensive tradables will result in lower real
wages for unskilled workers who reside in communities with abundant unskilled labor (for example, towns on the border with Mexico) but in
higher wages for unskilled workers who live in
communities inhabited mostly by skilled workers
(for example, Silicon Valley and metropolitan
Washington, D.C.). Leamer also points out that the
phenomenon is not strictly a North-South issue.
Less developed countries with low levels of capital accumulation to support a capital-intensive mix
of tradables have low wages to begin with, and,
when faced with increased competition from
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emerging nations with even lower wages, they
will experience high rates of unemployment.
Anthony J. Venables (1995) examines the international location of economic activity by focusing
on intermediate goods production. He analyzes
the effects of demand and cost linkages on industry location. His equilibria models lead him to
conclude that linkages are powerful not only within narrow industry groups but across manufacturing as a whole, leading to the agglomeration of all
manufacturing in one location or set of locations.
Therefore, if labor is not geographically mobile,
the result is regional wage differentials and
income inequalities. As Paul Krugman and
Anthony Venables (1993) point out, economic
integration will cause a widening of factor price
differences. Gordon Hanson’s (1996) study of
location economies within the Mexican apparel
industry shows strong support for a “regional
wage contour,” a differential in wages as apparel
jobs gravitate to the north of Mexico. This phenomenon is an effect of Mexico’s transition from a
closed to an open economy, one in which ease of
access to U.S. apparel industry centers is a prime
factor and regional and relative wages are determined not by the distance to Mexico City but by
access to the U.S. market. Finally, while arguments
have been made that unionization is a cause or
even a correlate of U.S. foreign production location decisions, Thomas Karier (1995) analyzes
over 30 industries and finds little evidence that
unions have been a significant factor in firms’
decisions to produce abroad.
It is fair to say that the general conclusion to
be drawn from a review of the relevant literature
on worker displacement, trade, and income
inequality is that trade is, as Richardson (1995)
points out, a moderate contributing source of
income inequality trends. It may not dominate
other sources, but neither can it be disregarded
(Mishel 1994). Trade is a stimulus to growth and
can boost incomes of all economic classes. As
Richardson and others conclude, the principal
quality question is, “What should be done?” As we
looked at NAFTA and the employment issues surrounding it for this study, we attempted to answer
that question and have offered policy recommendations based on our assessment.
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AND THE
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21
NOTES
1. Pew Research Center for the People and the
Press survey, conducted by Princeton Survey Research
Associates, February 9-14, 2000. A total of 1,330 adults
nationwide were surveyed.
2. NBC News/Wall Street Journal poll, conducted
by the polling organizations of Peter Hart (Democrat)
and Robert Teeter (Republican), April 29–May 1, 2000.
A total of 500 registered voters nationwide were surveyed.
3. The passage of the China trade bill in May 2000
is an exception to this trend. The sheer size of the market for U.S. exports and investment opportunities, concern about our strategic relationship with China, and
all-out business support of the legislation explain the
reasons for the bill’s successful passage by Congress.
4. The market access provisions of NAFTA mandate
that within 10 years of the January 1, 1994, implementation of the accord, all tariffs will be eliminated on
North American industrial products traded among
Canada, Mexico, and the United States. A few tariffs on
U.S. exports of agricultural products to Mexico will be
phased out over 15 years. Prior to NAFTA, Mexican tariffs, which ranged from 0 to 25 percent, were 2.5 times
U.S. tariff rates — and about the same as pre-CanadaU.S. Free Trade Agreement (CUSFTA) Canadian rates.
Without NAFTA, international trade rules would have
permitted Mexico to raise its tariffs as high as 50 percent without paying compensation. Under NAFTA,
however, tariffs on all goods entering Mexico from the
United States will be eliminated. On January 1, 1994,
Mexico eliminated tariffs on nearly 50 percent of all
industrial goods imported from the United States,
including some of our most competitive products, such
as machine tools, medical devices, semiconductors and
computer equipment, and telecommunications and
electronic equipment. Today, 65 percent of all U.S.
exports of industrial products to Mexico, including light
trucks, most automobile parts, and paper products,
enter Mexico tariff free.
In addition to the elimination of tariffs, Mexico will
eliminate nontariff barriers and other trade-distorting
restrictions. Upon implementation, U.S. exporters started to reap the benefits of the removal of most import
licenses, which had acted as quotas, essentially limiting
the importation of products into the Mexican market.
The benefits are twofold: 1) exporters are able to ship
more of their products into Mexico, and 2) exporting is
more cost-effective, since exporters no longer have to
deal with the uncertainty and administrative burden
associated with obtaining an import permit. NAFTA
also eliminates a host of other Mexican barriers, such
as local content, local production, and export perfor-
mance requirements, which have acted to limit U.S.
exports. Local content requirements condition permission to sell a product on the incorporation of a mandatory percentage of local parts or labor. In other cases,
companies must produce locally if they want to sell to
the domestic market, or they must export a certain percentage of production. NAFTA eliminates all these
requirements.
5. For a balanced and highly informative account
of the NAFTA issue, see Century Foundation, 1999,
NAFTA Expansion and Fast-track Authority (New York:
The Century Foundation).
6. Public Citizen’s Global Trade Watch (1997)
claims that the following firms made specific commitments to create or maintain jobs but instead laid off
workers because of NAFTA: Allied Signal, General
Electric, Johnson & Johnson, Kimberly-Clark, Lucent
Technologies, Mattel, Procter and Gamble, Siemens,
Whirlpool, Xerox, and Zenith.
7. For a recent in-depth assessment of NAFTA’s
impacts on Texas, see Paul Kengor, 1999, The Effect of
NAFTA on Texas (Dallas: Texas Public Policy
Foundation).
8. Gary Shoesmith (1999) points out that textile
production jobs have been decreasing for nearly three
decades because of enhanced productivity, technological improvements, and international competition. The
number of production workers in the United States
declined from 2.4 million to 1.7 million. However, it is
interesting to note that total production has increased
since passage of NAFTA. Overall, shipments of industry
rose from $148 billion to $164 billion. Productivity
increased 18.3 percent. Wages increased by 17 percent
in textiles and 20 percent in apparel. Automation and
productivity increases are the major factors in this
regard, as witnessed by an increase of 28 percent in
shipments per worker in textiles. In apparel, despite
300,000 jobs lost since 1993, shipments are up 3.4 percent, shipments per worker are up 40 percent, and
average production wages have increased by 23 percent. Job losses have been reported mainly among
assembly workers, not among the technically skilled,
better paying jobs in cutting, computer-assisted design
and manufacturing, marketing, and distribution.
Shoesmith also points out that Mexican clothing
exports to the United States are made from U.S. yarn or
U.S. fabric, whereas Asian exports utilize practically
none. Asia counts for only 15 percent of U.S. textile
exports but 45 percent of U.S. imports. In apparel, Asia
accounts for 10 percent of U.S. exports but a 56 percent of U.S. imports. Consequently, NAFTA has provided U.S. textile and apparel manufacturers with signifi-
22
cant employment opportunities.
9. Armington elasticities, based on the premise that
products from different countries competing in the
same market can be considered imperfect substitutes
for each other, measure the price elasticity of substitution between imports and domestic production. Many
trade economists believe that measuring the degree of
substitutability (and complementarity) between imports
and domestic production produces a more valid and
reliable means of assessing trade impact. See Paul
Armington, 1969, A Theory of Products Distinguished by
Place and Production , International Monetary Fund
(IMF) Staff Papers, Vol 16, No. 1; Paul Armington, 1969,
A Geographic Pattern of Trade and the Effects of Price
Changes, International Monetary Fund Staff Papers, Vol.
16, No. 216 (2); and Clinton R. Shiells and Kenneth A.
Reinert, 1993, “Armington Models and Terms-of-Trade
Effects: Some Econometric Evidence for North
America,” Canadian Journal of Economics 26 (2): 299317.
10. Under the original Trade Expansion Act of
1962, a worker was entitled to up to 65 percent of
average weekly wages in unemployment benefits for 52
weeks. Moreover, if a worker was enrolled in job training, an extra 26 weeks of unemployment compensation
(UC) was provided, plus another 13 weeks for those 60
years of age or older (Kapstein 1998, 508).
11. All states limit weekly UC benefits to 26 weeks
except Massachusetts and Washington, which extend
benefits for up to 30 weeks.
12. The Dante B. Fascell North-South Center
Americas Forum on Capitol Hill, 2000, NAFTA at Six:
An Assessment, U.S. House of Representatives, Rayburn
House Office Building, March 24.
13. AFL-CIO President John J. Sweeney, at the
organization’s Twenty-third Biennial Convention in
1999 and at the July 13, 2000, meeting of the
International Corporate Governance Network, reiterated
the need for a reform agenda — one encompassing the
WTO and IMF; debt relief for developing nations; and
a comprehensive, rule-based, integrated global strategy
to achieve equitable growth and development.
14. In former President Clinton’s fiscal year 2001
budget, the Dislocated Worker Employment and
Training Activities Program of the Workforce
Investment Act sets out to provide training and
employment services to about 984,000 displaced workers in 2001. The budget requested $1.8 billion in assistance to dislocated workers, a $181-million increase
from 1999, targeting 836,000 workers. In 2000, 80 percent of participants were expected to be employed
within six months after successfully completing the program in jobs that provided up to 98 percent of their
pre-dislocation earnings.
A N ORTH-SOUTH AGENDA PAPER • N UMBER FORTY-THREE
15. The writers argue that trade adjustment assistance encourages producers who become less profitable but are financially viable to abandon the industry. This “artificial incentive to exit” produces social
losses and economic inefficiencies. In addition, Cecil E.
Bohanon and Marilyn Flowers (1998) cite the equity
implications of assistance: producers who are least
harmed by foreign competition receive the most compensation as a percentage of their loss, and those who
are most harmed obtain less relative compensation or
none at all.
16. Core rights include freedom of association and
collective bargaining, elimination of exploitative child
labor, prohibition of forced labor, and nondiscrimination in employment.
17. “AFL-CIO Calls for New Direction in U.S.
Immigration Policy to Protect Workers, Hold Employers
Accountable for Exploitative Working Conditions,”
Press Release, February 16.
18. For example, the UAW has negotiated a deal
with General Motors (GM), Ford, and Daimler Chrysler
to increase tuition assistance benefits for all employees,
including their dependents. According to the AFL-CIO,
GM and the UAW are engaged in a joint program providing members with a $750-a-year stipend to be used
for education- and training-related services, making it
one of the largest such funds in the world. The CWA
and Cisco have partnered to provide high-skills training
to military veterans. Concomitantly, other programs
provide paid education leave in which management
and workers contribute a portion of their salaries for
education and training. In one case, Boeing
Corporation and the Machinists Union negotiated a deal
providing 10 cents an hour per covered worker to be
contributed for education and training, a figure that has
since increased.
19. The report, unveiled on November 4, 1999, at a
White House gathering, stated that many U.S. workers
were unable to participate in the new economy.
Reversing this reality, the group concurred, would be
an extremely complex challenge that could not be
undertaken single-handedly. Union leaders and
employers are engaging in new commitments to
improve workforce development, education, and training via four major learning objectives. First, education
and training programs need to be of a high standard
and quality so as to satisfy the qualifications and credibility necessary to meet the needs of the labor market.
Second, access to financial resources will be provided
in an effort to facilitate lifelong learning for all, especially those in low-paying jobs. Third, learning will be
promoted as an important tool in a way that identifies
workers’ interests and needs. Fourth, unions will
increase the number of awareness and outreach efforts
with relation to education, training, and learning. Many
of the major U.S. unions, such as the AFL-CIO, CWA,
FREE TRADE
AND
WORKER DISPLACEMENT: T HE TRADE ADJUSTMENT ASSISTANCE ACT
UAW, American Federation of Teachers (AFT), United
Steelworkers of America (USWA), and the International
Brotherhood of Electrical Workers (IBEW), have
pledged to promote and enact one or more of the
above mentioned goals. The Leadership Group also
made various pledges to help promote and provide
skill-building opportunities for its members. First, the
CWA would integrate high-performance workplace
skills into its training programs, while the AFT would
provide more training via the Internet and its publications. Second, the AFL-CIO would distribute information on establishing labor-management education and
training funds, and the United Steel Workers of
America (USWA) would collaborate with its 56 career
development sites to promulgate its high-tech teaching
materials. Third, the American Council on Education
(ACE) and the AFL-CIO would work together on a promotional effort to increase the number of workers who
take the high school equivalency examination (GED) to
about 1 million per year. Moreover, the AFL-CIO and
the ACE, together with the National Association of
Manufacturers (NAM), would form a team to expand
further the “College Is Possible” crusade, promoting
higher education among adults. The report may be
obtained at http://www.nifl.gov/nifl/skills.htm.
20. Among the leading private sector organizations
in workforce development are members of the
Business Coalition for Workforce Development, a
broad-based group of two dozen national business
organizations and corporate representatives dedicated
to implementing effective workforce communities
nationwide (See http://www.workforceinfo.net), the
U.S. Chamber of Commerce Center for Workforce
Preparation (See http://www.uschamber.com/CWP),
and the National Association of Manufacturers’ Center
for Workforce Success (See http://www.nam.org/Workforce).
21. Workplace education programs develop basic
skills but may also include instruction in English as a
second language and technical and job-specific training
within a broader training framework.
AND THE
CASE
OF
NAFTA
23
22. For further insights into changes and trends in
the workplace in the United States, see Peter Cappelli,
Laurie Barri, Harry Katz, David Knoke, Paul Osterman,
and Michael Useem (1997); Michael B. Arthur and
Denise M. Rousseau (1996); Charles Heckscher (1995);
and Cliff Hakim (1994).
23. Congress does seem to be quite satisfied with
the NAFTA-TAAP program for firms. Although the
authors of this paper did not research this program as
part of this study, we intend to do so in the near
future.
24. A significant number of joint labor-management
educational organizations have emerged as a result of
collective bargaining agreements and other arrangements between firms and unions in an effort to
strengthen and sustain the competitive skills of workers. See the websites of the Association of Joint
Labor/Management Educational Programs,
http://www.workplacelearning.org, and the Alliance for
Employee Growth and Development,
http://www.employeegrowth.com.
25. Richard Freeman maintains that in a global
economy the wages of workers in advanced countries
cannot remain above those of comparable workers in
less-developed nations.
26. Newly industrializing nations in Asia and Latin
America have also been experiencing this trend. See
Gary Fields (1994, 395-414), Ana L. Revenga (1994),
and Janet Currie and Ann Harrison (1994).
27. Analyzing these disaggregated categories, one
finds that they accounted for merchandise exports of
18.6 percent of the GDP 100 years ago versus 31.1 percent in 1989.
24
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