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Can Displaced Labor Be Retrained? Evidence from Quasi-Random Assignment to Trade Adjustment Assistance

February 2022

Written by: Benjamin G. Hyman

Working Paper Number:

CES-22-05

Abstract

The extent to which workers adjust to labor market disruptions in light of increasing pressure from trade and automation commands widespread concern. Yet little is known about efforts that deliberately target the adjustment process. This project studies 20 years of worker-level earnings and re-employment responses to Trade Adjustment Assistance (TAA)'a large social insurance program that couples retraining incentives with extended unemployment insurance (UI) for displaced workers. I estimate causal effects from the quasi-random assignment of TAA cases to investigators of varying approval leniencies. Using employer-employee matched Census data on 300,000 workers, I find TAA approved workers have $50,000 greater cumulative earnings ten years out'driven by both higher incomes and greater labor force participation. Yet annual returns fully depreciate over the same period. In the most disrupted regions, workers are more likely to switch industries and move to labor markets with better opportunities in response to TAA. Combined with evidence that sustained returns are delivered by training rather than UI transfers, the results imply a potentially important role for human capital in overcoming adjustment frictions.

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economist, endogeneity, earnings, employed, employ, labor, incentive, workforce, welfare, relocation, unemployment rates, employment statistics, unemployed, compensation, employment trends, unemployment insurance

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Bureau of Labor Statistics, National Science Foundation, Standard Industrial Classification, Internal Revenue Service, Social Security Administration, Ordinary Least Squares, Employer Identification Number, 2SLS, North American Free Trade Agreement, Decennial Census, Department of Labor, Council of Economic Advisers, North American Industry Classification System, American Community Survey, Longitudinal Employer Household Dynamics, Alfred P Sloan Foundation, Business Register, Individual Characteristics File, UC Berkeley, World Trade Organization

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