I happened upon this article on Bloomberg today that points out a paper, The China Shock: Learning from Labor Market Adjustment to Large Changes in Trade by David Autor of the Massachusetts Institute of Technology, David Dorn of the University of Zurich, and Gordon Hanson of the University of California-San Diego published on NEBR that is purported to show that, “When U.S. imports rise, so do unemployment and disability payments.”
I don’t subscribe to NEBR and have not read the paper, and I do not know whether the paper actually proves this point. My guess, from the included chart, is that it probably does not prove any direct link.
The thing is that the first column, the very smallest amount of compensation, includes both unemployment benefits and trade adjustment assistance (TAA). With TAA, in order to qualify, one has to prove a direct connection between trade and job loss, e.g., my job was outsourced to [insert foreign/offshore firm here]. In addition to providing a direct link, there is also a low threshold of multiple persons affected to be met, about 20 per incident. The job loss cannot be categorized as general layoff in order for TAA benefits to be paid.
The curious thing about the graph is that it appears to examine all social programs, including disability, as if any increase in these programs is due to trade, and the video attached to the article explains that people impacted by trade do not migrate to other jobs, but they do migrate through various social programs. It seems that in order to accept the findings, one has to stretch any logical connections to social spending increases quite far, considering that UI and TAA payments are quite small in comparison. How would I or anyone else know that the increases in social spending were linked to trade and not some other source? There is nothing here that addresses the missing link.
But suppose that I am missing something important. Suppose that this paper does prove that increased trade deficits are the root cause of all increases in social spending. I might even just concede that point to make it easy, hypothetically. The fundamental problem here, among others, of course, is that it doesn’t explain the absence of other things for people to do, why they lose their jobs and stay put collecting social benefits, and whether these phenomena are a consequence of trade or simply the fact that the world is developing around us, with or without the US, or what part of this reflects perverse incentives of the social programs themselves.
If I didn’t know better, I’d suspect an agenda. Perhaps my suspicion has to do with the author of the article having wrapped this NEBR paper around Donald Trump and Bernie Sanders rhetoric, which makes it even more problematic because there is no analysis here suggesting that any of the proposals put forward by either man will solve the problem without leaving everyone worse off. And so, while I might be able to stretch my imagination far enough to accept some still unproven causality, it isn’t so elastic that I can fathom those proposals as being anything more than rearranging the deck chairs on the Titanic.
Trump and Sanders have no point at all.
PS: Interesting also that the data set is 7 years – through 2007. I wonder why that is. Perhaps it has something to with the expanding trade deficit has everything to do with exploding social spending hypothesis ends up completely destroyed afterward. ( And no, I am not accusing anyone of cherry picking. But if the shoe fits…)