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

Benjamin Hyman, Business Economics and Public Policy, The Wharton School

Abstract: The extent to which workers adjust to labor market disruptions in light of increasing pressure from trade and automation commands widespread concern. However, surprisingly 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), the United States’ largest and longest-standing public incentive program for retraining. 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 displaced workers, I find large initial returns to TAA. Ten years out, TAA-trained workers have $50,000 higher cumulative earnings, driven by both higher incomes and greater labor force participation. Yet annual returns fully depreciate after ten years. TAA appears to have no effect on formal education, and decaying returns are concentrated in states with lower training durations. Combined with evidence that effects are driven by training rather than unemployment insurance transfers, TAA appears to augment transient rather than permanent components of human capital. Returns are further concentrated in the most disrupted regions, where workers are more likely to switch industries and move to labor markets with better opportunities in response to training—consistent with adjustment frictions.

Read the full working paper here (PDF).