Do the programmes serve their purposes?

The programmes belolong to the system of American social policy. The problematic aspect of social policy is that we can hardly figure up all its benefits and all the costs of negative consequences of the absence of social policy can not be counted either. How do we count the costs of the drug abuse of a child whose mother could not pay him/her any musical instrument lessons because she did not have enough money and the social system did not support her? What are the costs of demages caused by an alcoholic who started drinking as a consequence of loss of the job and the frustration that he/she was not able keep up the family?

In my point of view the scope of the social policy is based on the values of the society and it can not be refused as such. As the economists we may discuss whether the programmes of social policy are efffective or not to reach their purposes.

What are the declared purposes of the programmes provided by ETA? The answer ma be found in the justification summary of the programmes that is enclosed in the budget request for year 2008.²⁸ Their aim is to support the lifelong learning and the

28 FY08 Budget Request Overview: http://www.doleta.gov/budget/FY08_Budget_Request_Overview.pdf

overall change the viewpoint of the working people on on-the-job education. The goal of TAA, ATAA and NAFTA-TAA is defined as providing services to people who were made unemployed due to international trade and they serve to „get the people back to work“. ²⁹ This corresponds to the basic goals of social I mentioned in Introduction. The first goal is to support the people with sources to overcome the permanent/temporary lack of money or means to survive. On the other hand the system should provide them only with such amount money to motivate them to participate again in the labour market if they can and to find a new job as soon as possible.

Are the TAA, ATAA and NAFTA-TAA programmes effective in supporting and motivating people on American labour market?

8.2 Objections

I will present several objections to the programmes:

(1) They are focused only on part of the American market. They provide support to the employees of the firms which could not compete with the international rivals. In my point of view it is mistaken to support only the unemployed due to offshoring or import. It is a kind of privilege that harms the market mechanism. It weakens the motivation of people to handle the development on the market. If there is this scheme of programmes employees may be satisfied in the job position that may be offshored because they will be supported for two years after dismissal and moreover the state will provide them with training. The duration of their unemployment may be longer because they have sufficient income and the state budget will pay its useless costs.

(2) There already exists system of unemployment insurance. Do the people released due to ofshoring or imports need special handling? The situation on the U.S. labour market changed between the seventies and the eighties. The study (Baiker, Rehavi 2004: 240-241) reported that in the seventies the

29 TAA Program Services and Benefits: http://www.doleta.gov/tradeact/benefits.cfm#2

people who participated in TAA did not search for the job longer than other released not participating in TAA. However in the eighties the participants looked for a job longer than the others and the salary-drop in new jobs was relatively higher than others. There are two periods to be distinguished – before and after 1988 when the raining was made compulsory for the participants of the TRA. In the eighties before 1988 the recepiens of TRA stayed unemployed 74 weeks in comparison with the recepients of UI who stayed unemployed on average 42 weeks. After the training was made compulsory in 1988 the length of the period of unemployment decreased to 55 (TRA) and 39 (UI) weeks. (Decker and Corson 1995: 764) The average salary differential between TRA and UI recepients was 35% before 1988 and 2% after 1988. (Decker and Corson 1995:765-766) There may be two contradictory explanations. Firstly the participants in the programme were the people who could not participate in the labour market due to their lacking skills and abilities. The question would be then how they could get higher salary before? They might have been doing very specialized job (and I find this point to be the serious reason for retraining) or the employer was wasting money by paying them such a high salary while the other firms paid less and then no doubt that the firm went bankrupt. Or secondly during the period of the participation for instance in TAA they lost some of their skills and abilities and thus they get lower salary. This conclusion denies the positive effect of the training programmes. The only reasonable argument for retraining was the case of specialists who could not find the similar job any more.

The decision on social policy is the decision of politicians. They do not take into acount only economic theory, they want to be reelected so they follow the steps to attract voters´ support and there is also space for corruption and lobbying.

(3) The criteria for participating in the programmes are defined very vague. The decision on the authorization for the programmes depend a lot on the state agency and its employees.

(4) The problem with training provided by state agencies is the field of the training. What kind of knowledge should the granted schooling provide?

There is no reason to believe that the agencies would have perfect overview of market opportunities. The agencies may have contact with local enterpreneurs who would be willing to persuade the agency that the firm offers perspective employment and asks for specialized training for future employees. The firm would safe costs this way and it is a reason for lobby.

After few years the firm may move offshore and the agency will have to solve the same problem again and spend money on the same unemployed people. The policy of specializaed training may be waste of resources. I would support the idea of training of general abilities such as computer skills, writing CV or interview preparation. The increasing salaries are the best signs of growing branches for potential employees (even if it may be based only on exaggerated expectations). The rising salaries motivate people to gain new knowledge.

(5) Thank to TAA managers of a firm would have better position when they want to release some workers if the workers participate in the programmes.

If the costs of release (for instance costs of strikes) exceed the costs of lobbying or bribery the firm may really use these instruments to secure the participation in TAA for its workers.

(6) ATAA programme enable firms to pay lower salary to workers older than 50 since the state pays the wage difference. It may be helpful for the elderly who would not be willing to accept lower paid job but it is impossible to prevent firms to make use of this rule even if they would be willing to employ the person over 50. This again presents risk of waste of state budget.

(7) There is a report of United States Government Accountability Office claiming that TAA does not public the complete information on its outcomes

and costs and it can not be decided on the efficiency of the programme.³⁰ The official (and probably mistaken data follow in table 21). It is obvious that the extent of the programme rises, there is a steep increase between years 2002 and 2003 when the expenditures doubled. To make a real imagination of costs of the TAA programme I present the budget request of ETA for year 2008. As I wrote earlier ETA´s request of budget for 2008 reached $9,29 billion and TAA programme should gain $0,888 billion.³¹ If there should be the same number of participants in 2008 as in 2006 (120 199) it would be $7387,75 of costs per a worker engaged. This is much more than reported on the TAA web sites (the data in table 21).

Table 21: Expenditures per person engaged in TAA programme

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

expenses /thousand of $/ 97800 96600 85100 96700 94300 94000 94400 94500 222050 258200 259300 participants 86405 118663 91493 99252 155026 98007 139587 235072 197359 149240 117345 exp./particip. /$/ 1131.9 814.1 930.1 974.3 608.3 959.1 676.3 402.0 1125.1 1730.1 2209.7

Source: Own calculation on the basis of U.S. Department of labor data³²