The Cromnibus Is Great: It Spends $1 Billion to Extend a Program That Hurts Unemployed Workers

Should Congress spend $1 billion a year on a program that hurts unemployed workers? Congressional appropriators apparently think so: They just appropriated that much for the Trade Adjustment Assistance (TAA) program in the cromnibus leadership proposed today. Evaluations have shown the program lowers earnings for the workers it’s supposed to help, and yet Congress appears intent on wasting tax dollars on it.

Congress created TAA as a way to compensate American workers who lost their jobs because of trade treaties. Over time it’s transformed into deluxe unemployment benefits for anyone who loses their job to trade – whether or not that had anything to do with a trade deal. TAA provides covered workers with up to two years of unemployment insurance benefits, two years of job training, related subsidies, and payments for almost three-quarters of their health-insurance premiums. It costs taxpayers about a billion dollars a year, and was scheduled to sunset at the end of this year – until appropriators resuscitated it.

As my colleague David Muhlhausen and I explain in a recent paper, this spending does not appear to help unemployed workers. Mathematica recently conducted a study comparing workers who participated in TAA with similar displaced workers who did not. Their conclusion: Participating in TAA lowers workers’ overall incomes substantially.

How so? The government can certainly give away tax dollars. But TAA encourages unemployed workers to go into government job-training programs to get those benefits. Like most federal job training, programs they do little to improve participants’ wages when they finish. But while enrolled the participants rarely look for work. Many of the non-participants get jobs and make more than they would on TAA benefits. 

When participants leave TAA, they never make up these lost earnings. On average they earn $37,000 less over four years than non-participants, and TAA benefit spending only partially closes this gap. As Mathematica put it:

Participants’ reduced tax bills and higher benefits from UI and TRA were not enough to compensate for the additional earnings and fringe benefits they would have received had their paid employment been similar to that of the comparison group.

Mathematica estimates that TAA reduces societal welfare by over $50,000 per participant. Half of that comes from losses to participants. The other half comes from losses to the rest of society – entrepreneurs who could have put the money spent on the program to better use elsewhere, for instance.

Congress could stop funding on a program that actively makes its participants worse off.  The inclusion of TAA in the cromnibus suggests it will not. 

— James Sherk is the senior policy analyst in labor economics at the Heritage Foundation’s Center for Data Analysis.