Manufacture This

The blog of the Alliance for American Manufacturing

David Autor says trade is largely beneficial — but policy is needed to help those hurt by it.

The Washington Center for Equitable Growth, a D.C.-based think tank that funds research to address economic inequality, is out with a new series of 14 essays that provide advice for the new presidential administration.

As Bloomberg notes, the center has close ties to Democratic candidate Hillary Clinton— it was founded by her campaign chairman, John Podesta, and is overseen by the chief economist for her transition team — so what the essays really do is provide a look into what Clinton’s economic plan is likely to look like if she wins the White House.

A wide range of issues are addressed in the series, from minimum wage to early childhood development to social security and monetary policy. It’s worth reading all of them.

But it was the essay titled "Trade and worker welfare" that caught our eye.

It’s written by MIT economist David Autor, who helped coin the term “China Shock” to describe the devastating impact opening trade with China had on millions of American manufacturing workers.

According to Autor, trade with China has had many benefits, including the expansion of skill-intensive production, which raised the earnings of highly educated workers. The cost of many consumer products also decreased.

But all of this came at a cost. While trade increased “the size of the national pie,” as Autor puts it, blue-collar, non-college educated workers suffered, since many of their jobs were often sent overseas. Here’s Autor:

Decades of economic research demonstrate that workers who are involuntarily displaced from career jobs — particularly manufacturing jobs — suffer substantial earnings losses. These losses average one-and-a-half to nearly three years of annual earnings over the following 20 years, with the deepest scars felt by workers who are displaced during recessions.

This isn’t really big news, especially to readers of this blog. The question is — what do we do about it?

First, Autor argues that it is important to remember that it is unlikely that we will see a shock as powerful as trade with China created. Wages are rising in China, for one, and there’s no other nation that has a labor force that could create a similar situation in the future.

And Autor also argues that “policymakers should always be looking for ways to take advantage of the opportunities that trade offers.” What policymakers also must do, Autor says, is “refrain from asserting that ‘everyone wins’ from trade” and enact measures to help workers better recover from future shocks.

While he maintains “there is no magic policy” to fix things, Autor makes three key recommendations:

  1. Improve Trade Adjustment Assistance (TAA): The current TAA system is flawed and hard for many workers to even access, Autor says (others agree with him). Improvements to the program are desperately needed.
  2. Provide wage insurance: When a factory closes, workers are unlikely to find equally well-paid jobs nearby. Workers often must choose between taking a low-wage job or waiting for a good job. Wage insurance would help close the pay gap while workers transition into a new gig.
  3. Extend the Earned Income Tax Credit to workers without qualifying children: The EITC is “among the nation’s most significant tools for reducing poverty,” Autor argues. Extending it to childless workers and non-custodial parents would help others in desperate need of assistance.

While Autor focuses his essay on immediate ways to help workers impacted by manufacturing job loss, we also would argue that the next president must enact policy to encourage manufacturing job creation. Infrastructure investment, for example, has the potential to create millions of new jobs — and Buy America preferences can help create even more. Enforcing our nation’s trade laws and workforce development programs also are vital.

Read the full Autor essay, and check out the other essays in the series.