Maladjusted: It’s time to reimagine economic ‘adjustment’ programs

Last month we reported on the variable use, geography, and shortcomings of the nation’s most well-known economic “adjustment” program—the U.S. Department of Labor’s Trade Adjustment Assistance (TAA) program.

TAA—which provides retraining, income subsidies, and job-search assistance for workers displaced by trade-related disruption—merits a close look this winter in light of President-elect Donald Trump’s recent election and his many promises to improve the fortunes of the nation’s often-marginalized manufacturing workers.

Since TAA is the nation’s main effort to address dislocation and thereby stem working-class backlash, the nation should ensure the program works in light of the current tide of worker frustration. President-elect Trump should also want to make sure the program works well.

And yet, TAA doesn’t work that well. Although it retains a decent budget, TAA has not been particularly effective in helping displaced workers, according to evaluations. In fact, several studies, including one by David Autor and Gordon Hansen, have found that most trade-displaced workers end up relying on Social Security and disability benefits, rather than the retraining resources provided by TAA, as they try to move forward. Clearly the program needs to be strengthened.

And in fact, now would be an excellent time to build on recent bipartisan support to update TAA and improve it, say by enhancing its wage insurance and tilting the program more towards supporting moving expenses and retraining workers for entirely new pursuits.

And yet there is a larger problem—one that transcends the narrower problem of trade adjustment. Put simply: The nation’s entire patchwork of insufficient labor market adjustment programs—whether focused on trade, changes in defense or energy policy, or other forms of change—needs another look.

The core problem is that labor market disruption has grown more frequent and pervasive than before.  “Dislocation” is no longer an incidental “bug” in the labor market system but a feature of it, at a scale not seen since the 1930s.

Today’s disruptions range from relatively narrow issues, such as changes in military posture, to broader issues such as trade, to all-encompassing megatrends such as globalization and technology innovations like online freelancing markets, computerization, digitization, automation, advanced robotics, and artificial intelligence.  It says something, for instance, that McKinsey & Co. concludes that 60 percent of all occupations are at risk of partial or full automation given current technology. Such developments are creating pervasive anxiety and visiting dislocations on employees and regions that are hard to recover from and hard for elected officials to respond to. 

In contrast, though, the nation’s present set of relevant programs remains fragmented and stovepiped.  For trade-related impacts there is TAA.  For those affected by military base closings or weapons systems cancellations there is the solid Defense Industry Adjustment (DIA) program.  More recently, the POWER (Partnerships for Opportunity and Workforce and Economic Revitalization) initiative has worked out a $65 million collaboration Appalachian Regional Commission and the Economic Development Administration to assist those impacted by changes in energy policy, especially workers in coal mines and coal-fired power plants. And there are other efforts. For example, the Economic Development Administration’s (EDA) Adjustment Program has the authority to target particular communities under distress, while the Workforce Innovation and Opportunity Act’s dislocated worker programs offer relevant support.

Taken individually, most of these programs are well-intentioned and helpful. The problem, though, is that while adjustment is hard in any event, the programs are modest in scale and disjointed and often reactive in structure and effect. Here are some of the issues:

  • U.S. adjustment efforts are too small. Currently, other industrialized countries spend much more than the United States does on labor-market adjustment programs. Relative to five other industrialized peers (see figure), the United States spends the least while having perhaps the most volatile labor market. The EDA’s TAA for Firms program has a budget of just $13 million, while the Defense Industry Adjustment receives just $50 million. None of this is equal to the challenges.

metro_20170109_labor adjustment graph

  • U.S. adjustment efforts are narrow, piecemeal, and therefore hard to access at scale. The nation’s adjustment offerings are not just small but overly segmented. The programs address particular challenges with multiple discrete, small-bore programs focused narrowly on individual causes of disruption. Further complexity and under-performance results from the programs’ widely varying eligibility and types of benefits.
  • U.S. adjustment efforts are reactive. Perhaps the greatest concern is that the programs provide help only after the fact—and in increasingly old-school circumstances. Tuition, counseling, and training, for example, are usually made available only after a plant has closed or workers have been laid off. Moreover, the dated assumptions of the programs tend to tilt them toward tangible manufacturing dislocations when much broader sources of labor market disruption are now resulting from game-changing technologies (like robotics and automation) or disruptive business models (such as those powered by online digital platforms for freelance worker matching). Yet these trends are not part of the federal adjustment offerings. Similarly, the available programs do not reflect recent thinking that suggests that government should do more to help people who want to physically move to areas with more jobs and opportunity.

Such shortcomings are why, like President Nixon before him, President Obama pushed for a comprehensive displaced-worker program—focused on an overhaul of the federal unemployment insurance system—that would offer TAA-type benefits to all workers. And they are why President-elect Trump and the next Congress should move urgently to upgrade the nation’s patchwork of labor market adjustment programs.

What might such a rethinking look like?  Ultimately, the nation might see its way to create a single, holistic, multipurpose, adjustment benefit—a sort of basic transition offering—that might bundle together a core set of broadly relevant tools: job-search counseling, including opportunities in promising remote locations; sizable cash grants for training; sizable relocation grants; and wage insurance. Call it a Universal Basic Adjustment Benefit with a nod to proposals for a universal basic income from writers like Martin FordDylan Matthews, and others that would mitigate predicted large-scale dislocation through automation. Granted, no such benefit will be happening any time soon. But such a model should be kept in mind as a compass point for nearer-term, more incremental changes.

Returning to the here and now, meanwhile, a few suggestions on nearer-term improvements of the nation’s adjustment stance might include the following watchwords:

  • The nation needs to do more. The simple fact that the United States operates at the forefront of globalization and radical technology change argues for a greater level of effort for adjustment activities. U.S. expenditures for adjustment efforts as a share of GDP should at least be on a par with those of other advanced economies such as Canada or the United Kingdom. Benefits and programs should also be big enough to be meaningful and to change lives
  • Efforts should be more holistic. The sheer breadth of the coming dislocations argues that the nation’s multiple issue-specific programs should be better leveraged and coordinated, even if they aren’t fully integrated. Given that, designations of eligibility for help should sometimes be broadened (say, to include whole industries or regions), and greater coordination or effort-pooling among adjustment and related programs and agencies should be encouraged. Region-focused initiatives like the federal Investing in Manufacturing Communities Partnership offer a model for delivering multi-dimensional packages of support that engage a broad range of stakeholders and service providers for a comprehensive approach
  • Efforts should be more pro-active. Programs should be anticipatory and offer support when disruption is forecast but not yet hitting home. Pro-active efforts will maximize the opportunities for successful adjustment, whether by permitting worker retraining and job search prior to crisis or by supporting companies in efforts to seek new customers or build new products. Bolder steps might even improve the tax treatment of human capital investments to encourage pro-active retraining. Likewise, perhaps the government should change tax laws so that workers can tap savings earmarked for retirement via 401(k) funds or IRAs to invest in training without tax penalty.

Admittedly, pulling off the needed reforms will be a challenge. Eight years of hard work by the Obama administration achieved only modest inroads on the massive stovepiping within the federal government. And for certain each of the narrow adjustment programs is now encircled by armies of interest groups committed to the status quo.  Still, a number of enabling policy changes might allow for reinvention. Allowing greater pooling of agency funding for complementary purposes would seem a bipartisan governance reform, for instance.  Similarly, Republican and Democratic committees should be able to agree on the value of promoting multi-agency coordination and more holistic approaches across the worker adjustment agenda. Such steps would improve the functioning of the nation’s current sub-optimal adjustment initiatives while moving toward a much bolder rethinking of how the nation helps its workers adjust to change.

In sum, what is needed—both to improve trade adjustment assistance and to reform the rest of the nation’s weak and disjointed adjustment efforts—is a consistent, activist adjustment stance that seeks to help large numbers of workers and firms in every sector continuously adjust to the disruptions that have become the new normal of a changing economy. We will have more to say about what this might look like in the coming months. But for now we would just say that, getting serious about helping workers dislocated by trade, technology, and change of all kinds would be a great outcome of the Trump years, if achieved.