Displaced workers need more than what economists are suggesting

Nobel laureates Esther Duflo and Abhijit Banerjee recently penned a compelling critique of some basic assumptions in the field of economics. They argue that financial incentives often fail to deliver on the promises of fairness and efficiency, because people do not respond to them in ways that mainstream economics predicts. Ultimately, they argue, people care about things such as status, dignity, and social connections, which economists have a hard time measuring.

These are valuable insights for policymaking. But when Duflo and Banerjee apply them to the problems facing America’s trade-affected workers and communities, they land on a remedy—expanding the Trade Adjustment Assistance (TAA) program—that suffers from many of the same bad assumptions.

Why should we care about TAA? 

How the United States should cope with the impacts of trade and technological change is a hot topic in public policy circles. Many experts are concerned about technological change and the “future of work,” and its implications for job displacement and inequality. Others emphasize that trade-related job loss has already contributed to a significant rise in regional inequality, and that public policy has not responded adequately.

Against this backdrop, TAA—a relatively small and specialized program—stands out as the only “adjustment” program for displaced US workers that provides access to both income support and job training (as well as other benefits and services). Designed to compensate the “losers” from trade, TAA is often considered the “Cadillac” of workforce development programs. Yet the evidence on TAA—such as findings from a comprehensive evaluation that the program is underutilized and not very effective overall—indicates that Duflo and Banerjee’s recommendation to expand TAA wouldn’t address several of its fundamental design challenges.

TAA suffers from the same bad assumptions and design problems as economic theory

 At least three questionable assumptions are built into TAA’s design.

1. TAA makes flawed assumptions about the pain points that displaced workers experience.

In my research in job centers all over the country, I’ve met many displaced workers. I see an obvious mismatch between the program’s design and what workers say they need or would find helpful. Like other workers making career transitions, most want a way to get back into a good job faster, and to balance their need to upgrade their skills with other responsibilities, such as child care or paying the mortgage. Unlike other workers, many displaced workers explain that when they were first laid off, they were in a state of shock and crisis that took time to come to terms with. One middle-aged man told me that when his employer moved production to Mexico, he sold off all his belongings, including his beloved classic cars, before finally reaching the conclusion that he had to try going back to school.

TAA does not adequately respond to these user-centered needs. The process for applying is administratively cumbersome and subject to deadlines. The training available to participants is usually in a two-year college classroom, but many displaced workers have been out of school for years and lack confidence in an academic environment or find course content irrelevant to their practical needs. TAA has only a limited record of offering work-based learning opportunities such as apprenticeships or on-the-job training that adult learners and displaced workers are likely to find more appealing.

Historically, TAA has not offered much career guidance or one-on-one case management. Only in the last five years has the legislation required case management, and more research is needed to learn if it has been fully implemented. TAA does not explicitly incorporate principles of trauma-informed care or services that are sensitive to the damage that losing one’s job does to a person’s underlying self-esteem or sense of identity and purpose. In these ways, the program design seems to undermine the stated purpose of supporting adjustment.

2. TAA assumes it is possible to isolate the “losers” from trade, and that it’s enough to only help them.

The TAA program expends a lot of effort determining who qualifies as a “trade-affected worker.” This process is cumbersome and fraught with bottlenecks:

• An authorized entity (typically an employer, a group of three or more workers, a union, or a state or local workforce agency staff member) must file a petition on behalf of a group of workers with a federal agency;
• That agency investigates and determines whether the layoff qualifies as trade-affected, according to the legislation;
• The state TAA coordinator then obtains a list of potentially eligible employees from the employer (often a challenging step);
• The state unemployment insurance division sends notification letters to those workers (often in technical language);
• Finally, the worker must report to a job center by a certain deadline to determine if they qualify before they can participate in the program.

In stark contrast to the false precision of this process, researchers have found that trade liberalization affects entire low-wage, low-skill segments of the labor market (not just workers who directly experienced layoffs), and that the effects of trade competition are geographically concentrated in specific communities. Spending significant administrative effort on policing who qualifies as trade-affected or not seems a wasted effort when, as the OECD has argued, trade-affected displacement is really no different from any other form of displacement, and it affects many more people than those who directly lose a job.

3. TAA assumes that individual-level interventions are more important than community-scale ones.

TAA aims to compensate those who were disproportionately harmed by liberalized trade policies. But it fails to grapple with the community-wide impacts that extend beyond individual workers. For example, mental health problems, substance abuse epidemics, economic stagnation, chronic cycles of poverty, violence, and other effects of economic decline are not uncommon in communities disproportionately affected by layoffs. In one heavily trade-affected community, the job center staff told me that they struggled to serve a woman who was recovering from a methamphetamine addiction and trying hard to get a job, but she couldn’t go to an interview because she had no teeth and they couldn’t find a way to pay for her dentures. If there are no decent jobs to train people for, and people need extra support overcoming barriers such as addiction, TAA represents at best only a small component of what needs to be a multipronged set of policies.

The assumptions above are not unique to the TAA program. The weak, hollowed-out state of our labor market institutions and the social safety net as a whole is a direct result of the same dominant economic policy ideologies that Duflo and Banerjee critique in economic models. Policymakers intentionally designed TAA to be narrowly focused on trade-affected individuals, because they thought that would be enough to cancel out the harmful effects of trade. They were wrong.

If not TAA, then what?

To be fair, Duflo and Banerjee do not commit to expanding TAA as the only path, nor do they flesh out exactly what they mean by “expand.” They also propose a “Marshall Plan” for left-behind regions, which seems like the opposite extreme compared to tinkering around the edges of a flawed program.

A better “middle path” vision for a robust and equitable labor market adjustment policy would be:

• Firmly rooted in workers’ preferences, needs, and constraints, with services such as: easy-to-use career navigation; exposure to new employers, workplaces, mentors, and peers; assistance in communicating workers’ value and skills to new employers; and affordable reskilling options that get people back to work faster.
• Less focus and resources spent on who qualifies as “displaced” or as a “worker” or what qualifies as a “deserving” reason for support, and more focus on supporting career transitions for any adult who needs one.
• Multipronged solutions that coordinate individual-level supports with community-scale interventions.
• Policy incentives to leverage and braid existing assets and funding streams, such as aligning governance structures and incentives across programs.

In the long view, displacement and adjustment are part of capitalist processes of change. Rather than expand a single program that inefficiently targets specialized populations, we should overhaul how our country supports career transitions for all adults, developing simple and human-centered pathways for job seekers and employers. That would represent a true triumph over the tyranny of the tired economics that Duflo and Banerjee decry.