What can be done for free trade's 'victims'

For some people, going back to college on the taxpayer’s dime sounds like a dream. Not for William Iacovacci.

“First semester, I wasn’t sure I could make it. I had to learn how to learn again,” he says.

But Mr. Iacovacci, who lost his unionized job as a delivery man in 2012, stuck with the training, completing a two-year occupational therapy program. In April, he got his state therapist license and began applying for jobs in a career he never imagined would be his.

“I refuse to give up,” says the divorced father of two. “What message does it send to my kids if I give up?”

Iacovacci is one of the fortunate Americans who got help after losing a job because of foreign trade. He got his free ride at a local community college from a federal program that aims to cushion the blow for such workers. (His former employer, Hostess Brands, maker of Twinkies, claimed cheap imports from Mexico forced it into bankruptcy.)

But the program, known as Trade Adjustment Assistance, or TAA, has failed to help other workers land new jobs. And in this election year, the plight of such displaced workers has taken center stage.

Saying the worker protections need to come first, presidential candidates have stoked a backlash against trade. And that has thrown a spotlight back on the tattered safety net that tries to help them.

“In these trade agreements, the winners in America hugely outweigh the losers,” says Matt Gold, a former deputy assistant US trade representative who now teaches law at Fordham University. “The political problem is that the losers know exactly who they are, exactly how much they lost.”

Beyond trade

The issue extends beyond trade. Even if Congress slams the brakes on future agreements like the Trans-Pacific Partnership, the spread of automation in manufacturing means that disruption is likely to intensify, especially if it becomes widespread in the service industry, where most Americans work. In policy circles, that is a compelling argument for expanding access to the kind of retraining that has put Iacovacci on a new path.

“If you believe that technology change and automation and artificial intelligence are real, then retraining becomes even more important because it will affect services,” says Jacob Funk Kirkegaard, a senior fellow at the Peterson Institute for International Economics.

Studies of TAA programs find that job training does lead to higher rates of employment than simply cashing unemployment checks. However, older workers have less success in finding work and earning comparable salaries, particularly in industries like autos and steel where collective bargaining agreements were in force, says Pamela Loprest, a labor economist at the Urban Institute in Washington.

In Washington, TAA is seen as a sop to Democratic lawmakers whose votes are needed for union-opposed trade pacts; most Republicans see TAA handouts as wasteful and inefficient.

Those who support assistance to TAA-qualified workers say that the program needs a massive overhaul and greatly increased funding if it’s to make a serious impact.

"One of the challenges of the TAA is that it's very narrowly targeted," says Maureen Conway, executive director of opportunities at The Aspen Institute. Thus, many workers indirectly affected by trade don't qualify for assistance. 

Through 2021, Congress has allocated $450 million a year in grants for TAA-qualified workers – less than what the US spends on unemployment benefits in a week and much less than what other advanced nations spend on trade adjustment. In 2011, the US spent 0.1 percent of GDP on active labor market policies, primarily TAA. This compares with 0.3 percent in Canada, 0.8 percent in Germany, and 2.3 percent in Denmark, which is known for its “flexicurity” approach that makes it easy to lay off workers and provides them benefits while they retrain for their next job.   

Another challenge is that skilled workers aren't finding technical jobs and employers aren't able to fill them. The National Association of Manufacturers projects that more than half of the 3.5 million factory job openings in the next decade will go unfilled.

It blames the skills gap. Another factor, however, is that workers and employers aren't finding each other. WorkAmerica, a Washington tech company, aims to bring the two together via a website. The company has been working with students at community colleges and tech-ed institutions but is on the cusp of two partnerships that would greatly expand its reach to workers of all ages.

"They say it's harder to retrain someone whose older," says Michael Colonnese, cofounder and chief executive of WorkAmerica. "I would argue the opposite.... They need to get jobs. They are easier to retrain because they're much more motivated." 

'Just making it'

There are other potential remedies beyond retraining:

• Wage insurance. This is usually a program to supplement earnings for workers who are forced to take lower-paid jobs. It’s an incentive to go back to work instead of trying to claim disability or find another welfare program. It doesn’t have to be government-run: Mr. Kirkegaard points out that many workers in Denmark buy wage insurance from companies. TAA does provide wage insurance, but only for workers who are over 50.  

• Expanded access to health care. The Affordable Care Act has made it easier for displaced workers who lose their employee insurance to be covered while looking for work. Advocates say it also encourages entrepreneurship, which has been slackening in the US economy. Greater control of costs would also benefit displaced workers for whom out-of-pocket expenses are a challenge. Dean Baker of the liberal Center for Economic and Policy Research argues that trade negotiators should liberalize the medical profession so that trained foreign doctors can work in the US, which would increase supply and drive down prices.

• Community insurance. An economic shock in a community means that laid-off workers are competing for scarce or nonexistent jobs. Robert Lawrence, a professor of trade and investment at Harvard, says one answer is a tax-based insurance that effectively hedges against a sudden loss in income due to a major plant closure, for example. “The way we talk about trade having winners and losers puts the attention on individuals, but not enough about communities,” he says.

• Federally-funded public works. Roads and bridges would create jobs and upgrade the nation’s infrastructure so that it can stay competitive on world markets. Low interest rates mean that the cost of capital is cheap and the potential benefits are large.

At lunch, Iacovacci orders a Greek salad and rues the 40 pounds he says he gained while studying. He wears a blue polo shirt with the Hostess logo. His hair is gray, clipped short, and receding. The restaurant sits on a site that was previously a racetrack, where he worked as a stablehand after he graduated from high school. He later worked in food distribution, drove a long-distance truck, then joined Hostess in 2011.

TAA benefits include extended unemployment and reimbursement for job searches and relocation expenses. Still, Iacovacci says he dipped into his savings while he was enrolled full-time at the community college. The mortgage on his ranch house on the outskirts of Detroit is underwater; he points to houses on the block that recently sold for $25,000, far less than he paid before the recession.

“There’s nothing guaranteed in life,” he says.

Even when displaced workers find new jobs, many will earn less because of a change of occupation and a loss of seniority, says Mr. Lawrence, who was an economic adviser to President Clinton in his second term.

Iacovacci says he’s looking for a job with benefits but is resigned to making less than his final $70,000 salary at Hostess, which was set by the Teamsters Union. The median national wage for an occupational therapist is $57,870, according to the Bureau of Labor Statistics.

“It’s not that easy anymore. I’m just making it right now,” he says.

Free Trade in America

Part 1: The harsh downside of free trade – and the glimmer of hope
Part 2: The surprising truth about American manufacturing
Part 3: What 'good' free trade looks like
Part 4: Why, this time, free trade has hit American workers so hard
Part 5: What can be done for free trade's 'victims'