By Amrietha Nellan
The Peterson Institute for International Economics just released an analysis of the Trans-Pacific Partnership’s (TPP) impact on jobs, wages, and income distribution in the U.S. What is notable about this study is that the authors aimed to provide a balanced measure of the economic impact of the TPP, taking into account “the costs that accrue to displaced workers from spells of unemployment, withdrawal from the workforce, or the erosion in specific human capital when they eventually find new jobs.” Using careful methodology and values that overestimate the potential negative impact of the TPP, the study concludes that job loss will be minimal and will be significantly outweighed by increased wages and new jobs created by the TPP.
The study finds that between 2017 and 2026 during the adjustment period after TPP approval, the benefits will outweigh costs by a ratio of 18:1 and dramatically increases over the full implementation period to over 100:1. The TPP has such a high benefit to cost ratio because it has minimal cost, i.e. job loss. The authors find that even when they assume the theoretical worst-case scenario, where all imports lead to the laying off of both the workers who produce the item traded and the workers involved with the intermediate inputs to those goods and services without offsetting for the jobs that will be created, job displacement will affect at most 0.1% of the workforce. And importantly the authors find that this number decreases over time and ultimately that “the TPP yields a high return in terms of future income for the United States as a whole.”
The study also finds that the TPP will have a modest positive impact on income distribution in the U.S. By 2030 the percent gain for labor income from the value added by the TPP will be slightly greater than the gains to capital income. The study finds that this increase in labor income is shared across income brackets, with the lowest brackets having larger gains. Moreover, because the poorest households spend 8% more of their overall spending on exports from TPP countries, the cost savings on TPP goods due to the tariff cuts in the deal will disproportionately benefit individuals on the lower end of the wage spectrum. Therefore, the TPP “will confer net benefits to households at all levels of income” and will have a slight distributional impact on income.
The authors conclude that passing the TPP will be like “permanently adding $2.62 trillion to the U.S. capital stock” once it is in full effect, and that the overwhelming benefits support the passage of the TPP. However, the authors emphasize that although the jobs disrupted may be a small percentage, “involuntary unemployment is an extremely painful and costly experience.” The authors find that the best way to protect these workers is through domestic policies that share the gains of the TPP. Specifically, workers will benefit from trade adjustment assistance that also include safeguards like wage-loss insurance and expanded authority to regulate imports that injure domestic industries gives the most comprehensive protection for workers directly and indirectly impacted by trade. Thankfully, the Trade Adjustment Assistance Reauthorization Act passed last year, extending the benefits for six years. Now, all Congress needs to do is pass the TPP.