A LIKELY ITEM on the Reagan administration's "hit list" is going to be the Trade Adjustment Assistance program, which gives bigger and longer-term unemployment benefits to workers who are able to make the case that their unemployment is -- in some degree -- directly caused by foreign imports. Enacted in the 1960s to buy organized labor's acquiescence in trade liberalization, the program remained a minor budget item until 1974, when amdnements were passed enlarging its scope. It leveled off at an annual cost of about $250 million. But last year, as a result of auto industry layoffs and a stepped-up "outreach" program to encourage participation, the program exploded to a cost of $1.5 billion. Some people estimate that costs for the fiscal year just beginning will be in the $3 billion to $4 billion range.
Apart from its cost, certain features of the program make it a good target for reform. One is the highly discretionary nature of the entitlements it creates. Workers in a plant experiencing layoffs may seek 52 to 78 weeks of benefits at 70 percent of their before tax-wage -- on the grounds that imports contributed "importantly" to the layoffs. Exactly what "important" means and whether the facts warrant such a finding in a given case is left to the discretion of a small and currently besieged Department of Labor staff.
The program is also inherently unfair. Except for securing labor support for trade negotiations, there is no reason to provide more generous assistance to those laid-off workers who can claim some direct connection with imports than to others who are equally needy but are affected only secondarily or not at all by trade. Even the case that is often made for compensation for government-induced losses is very weak here. Government did not make imports; it made tariffs. And while changes in tariffs may occasion some unemployment, there is no longer a requirement to demonstrate such a connection precisely because under the earlier rule it was almost impossible to judtify a claim. The unfairness of the current program has been starkly demonstrated in the current recession, where workers in auto parts plants that are part of an auto-manufacturing company are receiving trade benefits while workers in an identical but independent plant down the road are not because they are only "secondarily affected."
One way out of this dilemma would be to extend benefits to all laid-off workers. This would simply amount to an enormous increase in the unemployment insurance system that is not only unlikely but undesirable because of its negative effects on work incentives and, hence, economic efficiency. Another choice is simply to abolish the program. But there are reasons not to do that either. This country is heading into a period of rapid change in its industrial structure. Many workers confront the bleak prospect of permanent job loss in industries where their skills are no longer needed.
A sensible assistance program might be one that restricted benefits to experienced workers who have been unable to find jobs after several weeks of search and who are willing to enroll in retraining courses or relocate to take a job in a growing area. A program along these lines would be a cost-saving replacement for the Trade Adjustment Assistance program, as well as a fair and efficient way of easing U.S. adjustment to necessary structural change.