How the 'Losers' in America’s Trade Policies Got Left Behind

[NED funded]

How the 'Losers' in America’s Trade Policies Got Left Behind

Economists have repeatedly said that trade deals create winners and losers. Yet despite this known dichotomy, America has done little to help the disaffected people across the country whose livelihoods have disappeared.

Richard Baumcratz is still puzzling over how that came to be. As an officer in the Glass, Molders, Pottery, Plastics and Allied Workers Union, he represents about 400 workers who for decades made glass containers such as beverage bottles and pickle jars in a factory owned by a company called Owens-Illinois located in Clarion, Pennsylvania. In 2010, the company said it would close the plant as part of a move to consolidate inefficient factories in North America and expand into emerging markets.

After the closing, Clarion became one of hundreds of towns across America that lost jobs to cheaper factories overseas. Owens-Illinois wasn’t the first factory to shut down there; a mattress factory and a mining-equipment manufacturer nearby had also closed recently. Things looked bleak for the laid-off glass workers. But Baumcratz was determined to help his workers maintain their quality of life. Because the shutdown was partially related to trade deals that led to lower tariffs between the United States and other nations where Owens-Illinois had plants, Baumcratz applied to get his workers qualified for retraining under a program called Trade Adjustment Assistance (TAA). Created in 1974, TAA provides retraining, income subsidies, and job-search assistance for people whose jobs have been displaced by trade.

The government approved his petition, which meant that all workers from the Clarion plant would be eligible for TAA and its sister program, Trade Readjustment Allowances. But in the six years since the plant went out of business, wresting economic hardship on the town of Clarion, few of Baumcratz’s workers have actually gotten retrained. About 35 people went back to college, finished college, or completed vocational school for professions such as truck driving. Of the rest of the 400 or so workers, a handful—about one-third—retired. A few moved to a plant in another state. The rest have been getting by on odd jobs in the community, Baumcratz told me, where they make about half what they made in the glass plant. It’s been a rough transition. “We thought we were doing a great thing, and it only helped 35 people,” Baumcratz said.

The story of the glass plant in Clarion is not unique. Though TAA is one of the government’s most robust retraining and support programs, it has not been very successful in helping those who lose jobs in manufacturing move on to equally lucrative careers. Though TAA has helped people receive training by providing them tuition, counseling, and information about educational opportunities, “those impacts had not yet translated into labor market gains during the four-year period following job loss,” a study by Social Policy Research Associations and Mathematica Policy Research for the Department of Labor found. The study compared TAA recipients to those receiving traditional unemployment assistance and found that after a few years, TAA recipients had lower earnings than people who had received normal unemployment assistance, and that out of those who received training for certain occupations, only 37 percent were employed in the occupations for which they had trained.

This is perhaps not surprising to people in the policy community: Retraining, as it exists now in America, doesn’t often work.“It’s not just that TAA isn’t working. It’s that the entire portfolio of labor-market adjustment policies in the U.S. isn’t working,” Chad Bown, a senior fellow at the Peterson Institute for International Economics, told me. That means few programs that aim to help people after job loss actually do so.

Why haven’t these programs been successful? The biggest reason, according to Kermit Kaleba, the federal policy director of the National Skills Coalition, is that communities such as Clarion that see factories shutting down are often suffering economically. That leaves few other opportunities for people, no matter what skills they can learn. “Training doesn’t create jobs, training provides opportunities while there are jobs,” Kaleba told me. “If a factory closes down, that doesn’t mean there’s a set of corresponding work opportunities.”

Of course, there may be jobs in other communities. But they present yet another problem: the low likelihood that workers will relocate. That fact that Americans don’t just pick up and move from economically depressed areas to booming ones—like they did during the Dust Bowl—has puzzled economists for decades. One study, from the American Economic Journal, has found that low-skilled Mexican-born immigrants move in response to labor demand, yet low-skilled American-born people do not. For every 10-percentage-point decline in employment for Mexican-born low-skilled men, the population of those men dropped 5.7 percent in a community, the study found. A similar decline in local employment led to no measurable decline in the less-skilled native population.

One of the reasons people may not move for better opportunities, according to Bown, is that areas losing lots of jobs see less demand for housing, and home values fall. Workers who may still be paying off mortgages suddenly find they are underwater, meaning they owe more on their homes than their homes are worth. That makes the prospect of moving a financially dubious, or impossible, one. Even those that may be able to afford relocating see little appeal in leaving behind a community where they’ve spent their whole life. I talked to a worker named Jerry Nowadzky, who was laid off from an Iowa factory that made printing presses in the 1990s. He and dozens of other factory workers went to a class where they were retrained to repair computers, he told me. But after the yearlong course, there were no jobs, he said. Nowadzky, his certification in hand, went to work stocking shelves in a grocery store at night. He might have been able to find a job had he gone to another city or state, he told me, but “we were in our 50s, and you can’t really pick up and move with all the roots you have.”

There are other reasons that retraining hasn’t worked, too. Sometimes, people don’t know what kinds of jobs are in demand, and so are retrained for professions with few prospects. Other times, workers who have been at factories for decades find the idea of going to college intimidating. Someone who hasn’t done math or compositional English in 30 years may feel too old to begin at age 50. So they avoid retraining, even if it’s free.

In recent years, conservatives have taken the failures of TAA as a clear sign that the program needs to be scuttled. They ask: Why spend so much money on a program that provides retraining that doesn’t work? But this logic is problematic. If trade creates winners and losers in our economy—and many people passively win by gaining access to cheaper products from overseas—isn’t there an obligation to compensate the losers in some way? Giving up on them because retraining hasn’t yet proven to be successful seems short-sighted and indeed might be what has led to the discontentment plaguing this election season. Some of the people most affected by trade—white, working-class older men—are those who have eschewed traditional candidates from both parties and supported the anti-trade platforms of Bernie Sanders and Donald J. Trump in the election. Both candidates had pledged to stop trade deals like the Trans Pacific Partnership. “In theory, the winners should repay the losers, but we don’t in our country,” Timothy Smeeding, a professor of public affairs at the University of Wisconsin-Madison, told me a few months ago.

There are other solutions out there that haven’t been tried in depth. For instance, last December, the writer Henry Olsen penned an essay proposing a new Homestead Act that would subsidize people who want to move to areas with more jobs. People stay put, he argued, in part because many benefits—like cash assistance—are tied to where they live. They also stay put because they don’t know about opportunities in other places, he wrote. That doesn’t make sense, he wrote:

“

Millions of low-to-moderately skilled, native-born, and immigrant Americans live in places where they can’t find decent work while a vast new economic frontier unfolds in Southern and Western states such as Texas, Florida, and North Carolina. These wide open spaces are enticing enough to encourage millions of Latin Americans to undertake dangerous and expensive journeys, yet millions of other Americans remain mired in ghettos, depressed steel towns and struggling regions like Appalachia and the Mississippi Delta.”

Olsen’s idea could help overcome one of the biggest obstacles in helping those who lose out in trade deals: that they’re stuck in places where there are few opportunities. Rather than do away with TAA, there might be promise in helping people move to where there are opportunities. This could include retraining, mortgage assistance, and counseling. This isn’t exactly a new concept in American public policy. In the housing sphere, families are moved out of high-poverty areas where there is high crime and not enough access to jobs to better homes in the suburbs, and are provided with counseling in that transition. Why not expand that program to include inter-state moves for the people who are mired in communities where there are no job opportunities?
Of course, helping people move to areas with good jobs could be an expensive proposition. Booming communities like San Francisco are often plagued by high housing costs, the result of people flocking to places where there are jobs. But that could be solved with the right affordable-housing policies.

As my colleague Derek Thompson has written, Americans are moving less than they did in the past. This coincides with the rise of an American populace discontent with the opportunities that exist where they are. Perhaps finding a way to help those who’ve lost out during the age of globalization relies less on factors outside America’s borders and more on policies within them.

Autor (2016)

Adjustment in local labor markets is remarkably slow, with wages and labor-force participation rates remaining depressed and unemployment rates remaining elevated for at least a full decade after the China trade shock commences. Exposed workers experience greater job churning and reduced lifetime income. At the national level, employment has fallen in U.S. industries more exposed to import competition...but offsetting employment gains in other industries have yet to materialize.

As a final note:
Krugman on trade:

Much of the elite defense of globalization is basically dishonest: false claims of inevitability, scare tactics (protectionism causes depressions!), vastly exaggerated claims for the benefits of trade liberalization…, hand-waving away the large distributional effects that are what standard models actually predict…The conventional case for trade liberalization relies on the assertion that the government could redistribute income to ensure that everyone wins…But it is fair to say that the case for more trade agreements…is very, very weak.

So what do you think MMO-C do you think trade liberalization (Globalisation) is an endeavor worth pursuing for?

EDIT: Forgot to add, its worth mentioning that while US workers suffer the consequences of trade, developing nations benefit a lot, while the win/win scenario many economists preach only occurs in the long term.

[Theodarzna]

Forgot to add, its worth mentioning that while US workers suffer the consequences of trade, developing nations benefit a lot.

The problem is that this moral equation you depict is missing key elements.

As Krugman acknowledges, the inevitability angle is obfuscating what is going on.

The problem of Globalization is that a handful, the veritable 1% if you will are the REAL beneficiaries of Globalization. The benefits conferred onto other countries is purely incidental, the primary beneficiaries are a class of people already incredibly wealthy.

Their preferred policies SACRIFICED our working class primarily for their own enrichment, its benefits in other countries is incidental and amounts to nothing more than some sappy last ditch defense.

In a sense Globalization has operated as a even more perverse trolley problem, except the person pulling the level collects millions of dollars in benefit no matter who he or she chooses to let the trolley run over.

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There are other solutions out there that haven’t been tried in depth. For instance, last December, the writer Henry Olsen penned an essay proposing a new Homestead Act that would subsidize people who want to move to areas with more jobs. People stay put, he argued, in part because many benefits—like cash assistance—are tied to where they live. They also stay put because they don’t know about opportunities in other places, he wrote. That doesn’t make sense, he wrote:

Olsen’s idea could help overcome one of the biggest obstacles in helping those who lose out in trade deals: that they’re stuck in places where there are few opportunities. Rather than do away with TAA, there might be promise in helping people move to where there are opportunities. This could include retraining, mortgage assistance, and counseling. This isn’t exactly a new concept in American public policy. In the housing sphere, families are moved out of high-poverty areas where there is high crime and not enough access to jobs to better homes in the suburbs, and are provided with counseling in that transition. Why not expand that program to include inter-state moves for the people who are mired in communities where there are no job opportunities?

I think this more technocratic approach ignores the other reasons people stay in bad areas. Part of it is familiarity. One reason for the rage of middle America is that government policy and policy thinkers cannot grasp that there is also the problem of community disintegration causing emotional distress ect. People are hesitant to leave what they know, especially for an uncertain and desperate future elsewhere.

In short, money and policy is probably an inadequate compensation for a desolated community. A destroyed town/village/community is not easily replaced by a job somewhere else. A community laments less the loss of the factory but that it means the town, their neighbors, their entire way of life has been taken from them. What amount of welfare can restore or even compensate for that sort of loss?

To give an artsy emotional appeal, consider the musical Fiddler on the Roof and the Villagers lament that they have lost their Shtetl (Tiny Jewish Village):


Olsen's idea is essentially "Make it easier to be a stranger in a strange new place." But that IMHO won't solve much. Housing in cities is egregious as is, and jobs are insecure, fast passed and often require continuous credentialing ect.

[Nadiru]

Regardless of whether I think globalization is a good thing, the advocates have so seriously bungled the defense of what they claim is an utterly obvious position that it's soured people on the issue. As such, what was once a "rock solid" anchor of the political landscape has become much mushier than it was back in the 1980s. Then again, were it not for the detour of the War on Terror, America may well have transitioned away from being a pro-globalist entity much earlier; certainly, there were very large demonstrations against globalization in the mid-to-late 90s. Perhaps anti-globalist sentiment is merely reemerging, not being generated.

[NED funded]

The problem is that this moral equation you depict is missing key elements.

As Krugman acknowledges, the inevitability angle is obfuscating what is going on.

The problem of Globalization is that a handful, the veritable 1% if you will are the REAL beneficiaries of Globalization. The benefits conferred onto other countries is purely incidental, the primary beneficiaries are a class of people already incredibly wealthy.

Their preferred policies SACRIFICED our working class primarily for their own enrichment, its benefits in other countries is incidental and amounts to nothing more than some sappy last ditch defense.

In a sense Globalization has operated as a even more perverse trolley problem, except the person pulling the level collects millions of dollars in benefit no matter who he or she chooses to let the trolley run over.

I don't really see the problem with this, accidental aid it's still aid and I don't think people will disagree on this. After all in many places in the world its better to have job over no job. But that's not what I take issue with, what I'm more interested in is if people value possible long term gains over short term losses.

[Theodarzna]

I don't really see the problem with this, accidental aid it's still aid and I don't think people will disagree on this. After all in many places in the world its better to have job over no job. But that's not what I take issue with, what I'm more interested in is if people value possible long term gains over short term losses.

The problem is the morality of sacrifice. Neither the working class here asked to be sacrificed, NOR was the aid given elsewhere even an intended goal, and if the third party I mentioned wasn't reaping the massive benefits then they would not engage in the policy.

One should not gain so much without personal sacrifice.

How short term are the losses? A century? You've just encompassed multiple generations, and more than a human lifespan.

It is easy to make the Utilitarian argument when your not on the sacrificial alter.

[NED funded]

Regardless of whether I think globalization is a good thing, the advocates have so seriously bungled the defense of what they claim is an utterly obvious position that it's soured people on the issue. As such, what was once a "rock solid" anchor of the political landscape has become much mushier than it was back in the 1980s. Then again, were it not for the detour of the War on Terror, America may well have transitioned away from being a pro-globalist entity much earlier; certainly, there were very large demonstrations against globalization in the mid-to-late 90s. Perhaps anti-globalist sentiment is merely reemerging, not being generated.

I don't think people took that much of an issue back in the 80s or 90s, because when a factory was outsourced they could've just move to another one. What's happening right now is that we are running out of jobs of similar skill for people to move in.

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How short term are the losses? A century? You've just encompassed multiple generations, and more than a human lifespan.

It is easy to make the Utilitarian argument when your not on the sacrificial alter.

This something that I've noticed. Opinions on certain ´policies change when one starts feeling the negative consequences.

A friend of mine in a joking manner says that the best way to raise awarness of the consequences of immigration is to implement an H1-B visa for journalists.

[GennGreymane]

Globalization was inevitable. Do you expect people and business to stay within the same boarders from creation to death? Technology advanced to the point where there is no going back.

Do you expect businesses to stop growing? Do you expect people to not seek employment in a better place?

[NED funded]

Globalization was inevitable. Do you expect people and business to stay within the same boarders from creation to death? Technology advanced to the point where there is no going back.

Do you expect businesses to stop growing? Do you expect people to not seek employment in a better place?

You mean as in trade liberalization? That's not really inevitable, the EU is currently negotiating wheather it should put tariffs to the steel imported from China. I agree though, right now we are in a point of no return, we can't bring back those jobs. However it's possible to prevent more jobs from leaving, as of now I fail to see what is the case for more trade agreements.

[GennGreymane]

You mean as in trade liberalization? That's not really inevitable, the EU is currently negotiating wheather it should put tariffs to the steel imported from China. I agree though, right now we are in a point of no return, we can't bring back those jobs. However it's possible to prevent more jobs from leaving, as of now I fail to see what is the case for more trade agreements.

Heck even China cant keep those jobs. Lots of jobs are already off to Vietnam, Laos, Cambodia, India, Zimbabwe, etc.

[NED funded]

Heck even China cant keep those jobs. Lots of jobs are already off to Vietnam, Laos, Cambodia, India, Zimbabwe, etc.

What's the case for more trade agreements?

[GennGreymane]

What's the case for more trade agreements?

I;m talking about globalization as a whole. Agreements can lead to many things, leverage, more imports, more exports, etc.

[NED funded]

I;m talking about globalization as a whole. Agreements can lead to many things, leverage, more imports, more exports, etc.

Leverage for who? The ones we make trade agreements with? Sure at some point their working conditions will catch up to ours and then we might recover some of those jobs, but thats in the long term. The benefits that we gain right now are not distributed properly and due to how our political system works it probably never will, it's been already sixteen years and workers are yet to recover from the China shock.

[GennGreymane]

Leverage for who? The ones we make trade agreements with? Sure at some point their working conditions will catch up to ours and then we might recover some of those jobs, but thats in the long term. The benefits that we gain right now are not distributed properly and due to how our political system works it probably never will, it's been already ten years and workers are yet to recover from the China shock.

Ever do a favor for someone and they do one for you later? Sign this deal and we will sign this energy deal with you later. You sign this deal, and allow us to export XYZ with little to no problem? The jobs aint coming back, what countries need to do is hit up the next innovation and own it, and just keep creating something new. Sadly, some of these other countries are doing it instead. China made bigger moves on solar panels than the US for example.

[May90]

I will put it short: I think free trade is a choice of the strong, and protectionism is a choice of the weak. Which one is practically more effective doesn't matter to me: I prefer to live in a society opening itself up, making itself vulnerable and being willing to deal with the upcoming challenges - rather than in one actions of which are caused by fear and desire to avoid fair competition and, if necessary, confrontation. My vision of the ideal distant future is total lack of borders, nationalities, genders, etc. Just people, interacting with each other and not covering behind walls of restrictions and prejudices.

I know though that currently we have a very cynic society, and I don't expect many people to agree, or even to consider my position sane. Although, looking at people like Musk or Zuckerberg, I think that we are slowly, but surely getting there.

As for the matter of economy in particular - I'll leave it to the experts to decide what practically is more effective. Although statistics somewhat answers this question: there is a strong correlation between the degree of globalization and quality of life. Not necessarily causation, but also unlikely a coincidence.

[NED funded]

Ever do a favor for someone and they do one for you later? Sign this deal and we will sign this energy deal with you later. You sign this deal, and allow us to export XYZ with little to no problem? The jobs aint coming back, what countries need to do is hit up the next innovation and own it, and just keep creating something new. Sadly, some of these other countries are doing it instead. China made bigger moves on solar panels than the US for example.

I've already agreed that those jobs are not coming back, but that doesn't mean we should not stop them from leaving at unmanageable rates. And the US will not enter into a depression if we do not sign any more trade agreements, sure we might be slightly less efficient (GDP growth), but the overall welfare of the people will be somewhat stable and fair for our people.

The second part of your answer is unrelated to the question. Innovation will occur regardless of trade policy.

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I will put it short: I think free trade is a choice of the strong, and protectionism is a choice of the weak. Which one is practically more effective doesn't matter to me: I prefer to live in a society opening itself up, making itself vulnerable and being willing to deal with the upcoming challenges - rather than in one actions of which are caused by fear and desire to avoid fair competition and, if necessary, confrontation. My vision of the ideal distant future is total lack of borders, nationalities, genders, etc. Just people, interacting with each other and not covering behind walls of restrictions and prejudices.

I know though that currently we have a very cynic society, and I don't expect many people to agree, or even to consider my position sane. Although, looking at people like Musk or Zuckerberg, I think that we are slowly, but surely getting there.

As for the matter of economy in particular - I'll leave it to the experts to decide what practically is more effective. Although statistics somewhat answers this question: there is a strong correlation between the degree of globalization and quality of life. Not necessarily causation, but also unlikely a coincidence.

Increase in quality of life for who and at what costs? I don't think its wise to ignore distributional effects.

[May90]

Increase in quality of life for who and at what costs? I don't think its wise to ignore distributional effects.

I think distribution of this increase is a separate matter, and shouldn't be considered in this scope. Another thing to note is that long-term effects might be much more significant than immediate consideration suggests; even if our models claimed that changing from free trade-oriented system to protectionism-based one would immediately increase a median citizen's quality of life, it could still have the opposite long-term trend. In this regard, I think globalization necessarily has strong positive long-term effects, as, among other things, it teaches people to compete in a fair environment, relying on their own abilities and not on their state to protect their business - which might lead to a generation of very effective and ambitious enterpreneurs eventually.

Some degree of protectionism is probably needed, especially nowadays, when otherwise companies would have to compete with strong international monopolies heavily supported by their centralized states. Much like some control of the internal economy is needed, to assure fair competition. But I don't think it should be significant enough, to the point when it hampers foreign small and medium businesses attempts to expand a new market.

[NED funded]

I think distribution of this increase is a separate matter, and shouldn't be considered in this scope.

Why not? If the working class is not seeing the benefits of free trade, why should they be sacrificed for it? Heck Autor sugests that effects of trade with China might have caused permanet damage to the welfare of workers,

Another thing to note is that long-term effects might be much more significant than immediate consideration suggests; even if our models claimed that changing from free trade-oriented system to protectionism-based one would immediately increase a median citizen's quality of life, it could still have the opposite long-term trend. In this regard, I think globalization necessarily has strong positive long-term effects, as, among other things, it teaches people to compete in a fair environment, relying on their own abilities and not on their state to protect their business - which might lead to a generation of very effective and ambitious enterpreneurs eventually.

Is it possible to comepete against near slave like conditions of working? Furthermore how long will it be until this long term benefits will materialize, because we are 16 years in and the recovery for the working class is yet to occur.
The amount of jobs gain from an increase in import industries does not offset the amount of jobs lost due to free trade with China. Besides no one is arguing we should return to protectionism in which we put tariffs to prevent trade, the claim being made is that if we should further trade liberalization. Giving past experiences I think we should not or at least not until we are capable of correctly assesing the gains from trade.

I'm not a Keynesian but god damn he was right about this attitude: In the long run we all die.

Some degree of protectionism is probably needed, especially nowadays, when otherwise companies would have to compete with strong international monopolies heavily supported by their centralized states. Much like some control of the internal economy is needed, to assure fair competition. But I don't think it should be significant enough, to the point when it hampers foreign small and medium businesses attempts to expand a new market.

Once again no one is arguing for protectionism, the argument that is being made is if we should continue signing more FTAs. As Krugman put it, there are no significant downsides of not signing free trade agreements and claims of inevitability are wrong. So the case for more FTAs is weak at best.

[Independent voter]

I'm of the opinion that the only way to neutralize the effects of globalization, one of the effects being lost jobs, is to make everyone in the world equally rich. Jobs won't move to Vietnam if Vietnamese wages are just as high as the US. Or within $5 an hour say.

One of the ways to raise wages globally is TPP.

Also people making lots of money globally is a good thing, they can buy our stuff, it leads to political stability, etc.

[Asiwassaying]

I'm of the opinion that the only way to neutralize the effects of globalization, one of the effects being lost jobs, is to make everyone in the world equally rich. Jobs won't move to Vietnam if Vietnamese wages are just as high as the US. Or within $5 an hour say.

One of the ways to raise wages globally is TPP.

Also people making lots of money globally is a good thing, they can buy our stuff, it leads to political stability, etc.

Ok. Why don't you get on the ball and make places like Mogadishu wealthy. I'll wait.

[Independent voter]

Ok. Why don't you get on the ball and make places like Mogadishu wealthy. I'll wait.

Don't have to, GE is never going to move a plant to Mogadishu.

"never" is a strong word, let's just say Mogadishu has a lot of work to do before they're competitive as Vietnam.