Trade Adjustment Assistance: New Ideas foran Old Program

June 1987

NTIS order #PB87-203741

Recommended Citation:U.S. Congress, Office of Technology Assessment, Trade Adjustment Assistance: NewIdeas for an Old Program-Special Report, OTA-ITE-346 (Washington, DC: U.S. Gov-ernment Printing Office, June 1987),

Library of Congress Catalog Card Number 87-619836

For sale by the Superintendent of DocumentsU.S. Government Printing Office, Washington, DC 20402-9325

(order form on p. 69)

Foreword

In 1986 OTA was asked by the Senate Committee on Banking, Housing, and UrbanAffairs; the Senate Committee on Finance; and the House Committee on Banking, Finance,and Urban Affairs to carry out an assessment of technology, innovation, and U.S. trade,As part of that assessment, and in preparation for congressional consideration of new com-prehensive trade legislation, Senator John Heinz asked OTA to prepare a special reportevaluating the problems and opportunities of the Trade Adjustment Assistance program(TAA).

TAA includes two programs: employment and training assistance for workers who havelost jobs on account of trade and technical assistance for firms and industries hurt by im-ports. Both parts of TAA have the potential to help workers and businesses adjust to inten-sifying global competition. This report discusses options for TAA redesign and adminis-tration that could make both programs more effective.

OTA’s analysis of TAA for workers builds on a broader assessment, Technology andStructural Unemployment: Reemploying Displaced Adults, published in February 1986,which examined the reemployment and retraining needs of displaced workers generally(not just those affected by trade) and the adequacy of government programs to meet thoseneeds. Taking as a starting point the lessons learned in the earlier study, this special reportanalyzes the strengths and weaknesses of TAA in helping trade-affected workers find ortrain for new jobs. TAA’s greatest strength is its capacity to support long-term training,Its major weaknesses are delays in delivery of services and lack of attention to workers’individual needs. This report focuses especially on coordinating TAA benefits with theservices available to all displaced workers under Title III of the Job Training PartnershipAct, in ways that take advantage of the strong points of both programs and best serve theindividual worker. TAA for workers has recently expanded and is now a substantialprogram—almost equal in funding (about $200 million in 1987) and enrollment (more than100,000 workers) to the JTPA Title III program,

TAA for firms and industries, modestly funded at about $16 million per year, is never-theless the main source of long-term, intensive technical assistance from the Federal Gov-ernment to small and medium-sized manufacturers. The Administration has long proposedto abolish the program, arguing that it is inappropriate and ineffective, and in recent monthshas largely immobilized it by delaying grants to service providers. Despite its difficulties,the program does have potential for helping high-risk, trade-injured firms recover competi-tiveness. The potential cannot be fulfilled, however, unless the grants that pay for technicalassistance are released in a timely, reliable manner.

In conducting this study, OTA interviewed TAA and JTPA Title III program managersin 39 States and directors of 11 Trade Adjustment Assistance Centers, which receive TAAgrants to deliver technical assistance to firms. The viewpoints of many others with an in-terest in the TAA program were sought as well. OTA thanks the many people who pro-vided data and advice—panel members; State and local government officials; representa-tives of the Departments of Commerce and Labor; and experts in academia, business, andlabor unions–for their assistance. As with all OTA studies, the analyses and findings ofthis report are solely those of OTA.

Director

.,.///

Technology, Innovation, and U.S. TradeAdvisory Panel

Lewis Branscomb, ChairmanHarvard University

Michael AhoCouncil on Foreign Relations

John CulbertsonUniversity of Wisconsin

Bruce CumingsUniversity of Washington

Joseph GrunwaldUniversity of California, San Diego

Jeffrey HartIndiana University

George N. HatsopoulosThermo Electron Corp.

Thomas HoutBoston Consulting Group

Franklin P. Johnson, Jr.Asset Management Co.

Lester KroghMinnesota Mining & Manufacturing Co.

Paul KrugmanMassachusetts Institute of Technology

Al LehnerdSunbeam Corp.

Ann MarkusenNorthwestern University

Ray MarshallUniversity of Texas

Regis McKennaRegis McKenna, Inc.

Richard MorseWellesley, Massachusetts

David MoweryNational Academy of Sciences

Robert N. NoyceINTEL Corp.

Kenneth OshmanMenlo Park, California

Paula SternCarnegie Endowment for International

Peace

Brian TurnerAFL-CIO

Gus TylerInternational Ladies Garment Workers

Union

Lewis C. VeraldiFord Motor Co.

Ezra VogelHarvard University

OTA Project Staff–Trade Adjustment Assistance

Lionel S. Johns, Assistant Director, O T AEnergy, Materials, and International Security Program

Audrey BuyrnIndustry, Technology, and Employment Program Manager

Katherine Gillman, Project Director

Mary R. Clifford, Analyst Julie Fox Gorte, Senior Analyst

Edna M. Thompson, Administrative Assistant

Diane White, Secretary

Acknowledgments

This special report was prepared by the staff of the Industry, Technology, and EmploymentProgram of the Office of Technology Assessment. The staff wishes to acknowledge the contribu-tion of the Advisory Panel, and to thank the following individuals, organizations, and govern-ment agencies for their generous assistance:

Paul Barton, National Assessment ofEducational Progress

Steven Baldwin, National Commission forEmployment Policy

Louis Jacobson, The W.E. Upjohn Institutefor Employment Research

Robert E. Litan, The Brookings InstitutionNew England Trade Adjustment Assistance

Center

Southeastern Trade Adjustment AssistanceCenter

State of Massachusetts, Industrial ServicesProgram

U.S. Department of Commerce, Office ofTrade Adjustment Assistance

U.S. Department of Labor, Office of TradeAdjustment Assistance

U.S. General Accounting Office

In addition, OTA wishes to thank the State administrators of Trade Adjustment Assistanceprograms, State managers of displaced worker programs (under Title 111 of the Job TrainingPartnership Act) and directors of the Trade Adjustment Assistance Centers who generously tookthe time to respond to OTA’s telephone and letter surveys on Trade Adjustment Assistance.

CONTENTS

Summary and Conclusions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Trade Adjustment Assistance for Workers.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Trade Adjustment Assistance for Firms and Industries. . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Policy Issues and Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .TAA for Workers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Continued Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Coordination of TAA and Title III Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Reducing Delays and Inequities in TAA Certification . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Outreach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Industrywide Certification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ., . . . . . . . .Other Problems of Equity.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Emphasizing Adjustment Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Funding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

TAA for Firms and Industries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Continued Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Industrywide Certification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Trade Adjustment Assistance: History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .TAA for Workers: 1962-87 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Creation and Early Years: 1962-74 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Years of Expansion: 1975-81 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Cutback and Regrowth: 1981-87 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

TAA for Firms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .The Early Years: 1962-74 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Years of Expansion: 1975-81 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Bare Survival: 1981-87 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Trade Adjustment Assistance for Workers: Issues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .The Equity Argument for TAA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Extra Benefits Under TAA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Vocational Skills Training . . . . . . . . . . ..., , ..., ., ., , ..., . . . . . . . . . . . . . . . . . . . . . . . ,Out-of-Area Job Search and Relocation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Extended Income Support . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Difficulties With TAA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Delays . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Eligibility: Drawing the Lines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .The Job Search Program Requirement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .The Department of Labor’s Role. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Coordination Between TAA and Title III Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Trade Adjustment Assistance for Firms and Industries: Issues. . . . . . . . . . . . . . . . . . . . . . . .How TAA for Firms Operates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Should TAA for Firms Continue? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The Inspector General Study . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .The HCR Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Defining Success. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ., . . . . . .

Improving TAA for Firms: Problems and Opportunities .., . . . . . . . . . . . . . . . . . . . . . . . . .Interruptions to the Program ., . . . . . , ., ., . . . . . . . . , . . . , , ..., , ..., . . . . . . . . . . . . . .Time Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Outreach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

115

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CONTENTS–ContinuedPage

Affiliations With Other Institutions ., . . . , . . . . . . . . . . . . . . . . . . . . ., . . . ... , ... , , . . . . 65Broader Eligibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66

The TAA Industrywide Program ..., .. ..,.., . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ,.., 66

BoxesBox Page

A .Are GM Auto Workers Trade-Affected? Under TAA Rules, Maybe Not . . . . . . . . . . . . . . 38B. Coordinating TAA and Title III Programs: How Massachusetts Does It . . . . . . . . . . . . . 50C. New Life for a Ninety-Year-Old: TAA Helps New England Clock Firm Survive. . . . . . . 55D. Made in the USA: Trade Adjustment Assistance for Apparel Manufacturers . . . . . . . . . 56

FiguresFigure No. Page

1, Workers Certified for TAA Benefits, 1969-87 , . . . . . . . . ., ., ..., . . . . . . . . . . . ..., . . . , . 232.0utlays for TAA Benefits for Workers, 1970-87 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..., . 243. Workers Certified for Trade Adjustment Assistance, by Selected Industries, 1975-86 . . . 29

TablesTable No. Page

l. Workers Certified for TAA, Trade Readjustment Assistance,and Adjustment Services, 1975-87. . . . . . . . . . . . . . . . . . . . . . . , . . . , . . . , . . . . . . , . . . . . . . . 25

2. Workers Certified for Trade Adjustment Assistance, by Selected Industries,Fiscal Years 1970-86 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

3. Workers Certified for TAA as a Percentage of Workers Applying . . . . . . . . . . . . . . . . . . . 284. Trade Adjustment to Firms and Industries,

Fiscal Years 1978-86—Technical Assistance . . . . . . . . . . . . . . . . . . . . , . . . . . . . . . . . . . . . . . 335. Firms and Industries Receiving TAA Technical and Financial Assistance,

Before Fiscal Year 1982 and Fiscal Years 1982-86 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

,viii

SUMMARY AND CONCLUSIONS

In debating the great issues of internationaltrade, and searching for new ideas to improveU.S. competitiveness, Congress has the oppor-tunity to examine and improve an old idea,Trade Adjustment Assistance (TAA). Adjust-ment assistance for workers losing jobs andfirms losing business because of imports hasexisted, in various forms, for 25 years. In to-day’s world of intense global competition, TAAhas good potential for helping American work-ers and businesses adapt. Neither the programfor workers nor the one for firms is currentlyfulfilling its potential, but both have strongpoints to build on.

TAA for workers offers special training andrelocation assistance and extended income sup-port during unemployment to people losing jobson account of imports. After several lean years,the program has regrown to substantial propor-tions, expected to cost over $200 million in 1987and enroll well over 100,000 workers. Histori-cally, the income support part of the programdwarfed training, but in recent years traininghas taken on greater importance. The strong-est point in the TAA program for workers is bet-ter opportunities for training than in other gov-ernment-sponsored employment and trainingprograms.

TAA for firms offers technical assistance tofirms and industries that are losing out to for-eign competition. The TAA firm program issmall and its existence precarious. In line withAdministration policy to abolish it, only $2.2million of the $15.8 million funding providedfor it by Congress had been released by May1987. Modest as it is, TAA for firms is the ma-jor Federal program providing sustained, in-depth technical assistance to small and medium-sized manufacturers.

The Administration also proposes to end theTAA program for workers, arguing that theycan be served in a new broader program opento all displaced workers.1 (Spending for the

IThe Administration proposal for a new worker readjustmentprogram is described in the section entitled Polic.v ]ssues andOptions.

present TAA program for workers has not beenheld up, however.) The rationale for a programopen only to trade-affected workers and busi-nesses is that people who bear the heaviest costsof the Nation’s free trade policy, meant to ben-efit all Americans, deserve special assistance.The main argument against a special programis that, as the U.S. economy is increasingly in-volved in world trade, distinctions among thosewho are trade-affected and those who are nothave become difficult and arbitrary.

If Congress decides to maintain TAA forworkers as a separate program, it may want toconsider several ideas for bolstering TAA’sadvantages—mainly, training opportunities—and repairing its weaknesses, such as delaysand inequities in determining workers’ eligi-bility. If TAA for firms is to be preserved, itwill need strong, explicit congressional direc-tion for timely spending of appropriated funds.

Trade Adjustment Assistance for Workers

After several years when TAA benefits wereprovided to relatively few workers and spend-ing was limited, TAA is now expanding rap-idly. In 1987, TAA approached the size of thegeneral displaced worker program, under Ti-tle III of the Job Training Partnership Act(JTPA), which is open to anyone who loses ajob when U.S. industries close plants, retrench,automate, relocate, or send work overseas.Funds for Title III for the program year begin-ning July 1987 will be $223 million,2 about equalto the projected TAA spending of $203 millionfor fiscal year 1987 ($223 million if a supple-mental appropriation of $20 million is passed).About 145,000 workers per year were newlyenrolled in Title III projects in the mid-1980s;this compares to 93,000 certified for TAA ben-efits in fiscal year 1986, and 110,000 to 140,000

2For the program year 1986-87, Title I I I funds were $100 mil-lion; Congress had cut the funding from $223 million because,on a national basis, there was a large amount of unspent Title111 funds. Congress restored funding to $223 million for the pro-gram year 1987-88.

2

expected to be certified in 1987, s Thus, T A Ais a major resource for displaced workers whoare trade-affected. One director of displacedworker services (Massachusetts) told OTA:“TAA is the only way we’ve been able to makethe money go far enough. ”

To be eligible for TAA benefits, workers mustbe laid off, or threatened with layoff, from afirm that is losing ground to import competi-tion. First, a group of three or more workers,or their union or representative, or the com-pany, must petition the U.S. Department of La-bor to certify them as eligible. To approve thepetition, the Department must find that: 1) asignificant number of workers in the firm orsubdivision have lost their jobs, or are threat-ened with job loss; 2) the firm’s sales or pro-duction, or both, have declined absolutely; and3) imports of articles “like or directly competi-tive with” articles the firm produces “contrib-uted importantly” to the decline; that is, the in-creased imports were as important as any otherfactor in the decline. On this last point, the La-bor Department requires proof that the firm’scustomers have switched to imports, and theswitch must be recent, since records are exam-ined for the past 2 years only. Once certified,the workers are eligible for income support, atthe level of unemployment insurance (UI) pay-ments, for as long as 1 year of unemployment;training and extended income support duringtraining; and allowances to cover (within limits)the costs of out-of-area job search and relo-cation.

According to State officials responsible forthe programs,4 TAA’s greatest advantage hasbeen its ability to support long-term, intensivetraining and its extended income support forworkers in training—up to 78 weeks, at the levelof unemployment insurance (about $150 a week,on average). TAA legislation has always statedtraining in a new skill as a major aim of the

program. Though training was little used in the1970s, it has recently become a stronger com-ponent of the program; training and relocationassistance has accounted for about 25 percentof TAA spending since 1982.5 The number ofworkers getting TAA training is not large; ithas been about 7,000 to 8,000 a year in recentyears. However, State officials report that de-mands for TAA training are rising.

In 1987, in fact, TAA training funds were run-ning out. Before the end of the first quarter ofthe fiscal year, the Labor Department was de-laying, rejecting, or sharply cutting backproposals for training submitted by the States.Even so, $18 million of the year’s $26 millionappropriation for training, out-of-area jobsearch, and relocation assistance was gone byMarch, and half the rest was reserved for jobsearch and relocation assistance, which areconsidered entitlements under the law. 6 I nApril, the House passed a supplemental ap-propriation of $20 million; by early May theSenate Appropriations Committee reported outa bill, but the full Senate had not yet acted.

Despite the current shortage of funds, TAAdoes have the mandate and the potential to sup-port long-term training. The JTPA Title III pro-gram, open to all displaced workers, has a greatdeal of flexibility, but in practice, training tendsto be be deemphasized. Most of the JTPA pro-grams give higher priority to low-cost job searchassistance that leads to early reemployment.Title 111 training is usually short (9 weeks,on average, according to the General Account-ing Office), and income support is nearly al-ways confined to the 26 weeks of regular UIpayments.

Several bills before Congress would requirethat workers receiving TAA income supportpayments (Trade Readjustment Allowances, orTRAs) take remedial education or vocational

3OTA based this estimate for 1987 on the numbers of workerscertified in the first two quarters of the fiscal year. Certifica-tions were exceptionally high in the first quarter, because theLabor Department simplified its decision process, and wentthrough a backlog of petitions,

4For this special report, OTA interviewed directors of TradeAdjustment Assistance worker programs and JTPA Title 111 pro-grams in 39 States.

5For most years, Labor Department records do not show spend-ing for training, out-of-area job search, and relocation assistanceseparately; in fiscal year 1984, when spending was reportedseparately, training accounted for 87 percent of the total for thethree benefits.

8The total appropriation for training, out-of-area job search,and relocation assistance was $29,9 million, of which $3,9 mil-lion was for administrative costs.

3

skills training courses, unless State officialswaive the requirement as inappropriate or in-feasible. If Congress wishes to to take such stepsto emphasize training under TAA more strongly,higher funding will be necessary. The LaborDepartment has projected that 55,000 workerswill draw TRAs in 1987, an estimate that isprobably low, considering the rising numberof workers being certified. T If 55,000 TAA-eligible workers were in training, the cost forthe year would probably be about $138 millionto $165 million; this compares to an appropri-ation of $29.5 million for training, out-of-areajob search, and relocation allowances in fiscalyear 1987.

The great disadvantage of TAA, according toState officials, is that workers have to wait toget adjustment services. Often, workers do notknow about the TAA program and do not sub-mit petitions for eligibility promptly. Then itusually takes at least 60 days to get a decisionfrom the Labor Department. Until quite re-cently, the delays were often much longer. InOctober 1986 the Department simplified the cer-tification process and delegated part of the fact-finding to its regional offices, In May 1987 theDepartment reported that 85 percent of peti-tions were being approved or denied within the60 days the law allows for a decision. Becauseapprovals are case-by-case, however, some de-lay is built into the TAA process. Experiencewith displaced worker adjustment programsshows that early action is critical in helping theworkers find or train for new jobs, Under TitleIII of JTPA, an immediate response to plantclosings or mass layoffs and early provision ofservices are possible, although most States arenot yet organized to offer an effective rapid re-sponse.

State officials also report that workers aremuch more likely to get individual skills assess-ments and job counseling from Title III projectsthan from the Employment Service, which ad-ministers TAA training and relocation assis-tance, Workers benefit most from training—both remedial education and occupational skills

7According to Labor Department spokesmen, this estimate maybe revised upward.

training—that follows individual assessmentand counseling.

Thus, it takes a combination of features fromTAA and from JTPA Title III to provide the bestservice to trade-affected displaced workers.Most States have at least some pro forma in-tegration of TAA and Title III services, but onlyabout a dozen do an effective job of putting thebest features of the two programs together. Inthe few States that do an outstanding job (Mas-sachusetts, for example), everyone from theState director of displaced worker servicesdown to staff at individual projects is awareof the helpful features of both programs. Theyare aggressive in urging unions, companies, orgroups of three workers to submit TAA peti-tions promptly. “We go to the plant the minutewe hear about a closing or layoff, ” said a Mas-sachusetts official, “and we carry TAA peti-tions in our pockets. ” They use Title III forcounseling, assessment, and job search skillstraining, and for starting workers in vocationalskills training. They switch to TAA, if it comesthrough, for longer term training.

Some of the States that do little to coordinateTAA and Title III services have few displacedworkers. Some, however, do have large num-bers of certified workers, but neither Title IIInor TAA officials are aware of the potential ofthe other program. For example, in Santa ClaraCounty, California, where tens of thousands ofworkers in semiconductors and computershave lost jobs since January 1985, Title 111project managers knew little or nothing aboutTAA, The same was true of officials at the Statelevel.

In general, States have not received adequateFederal information and guidance on TAA. Forexample, regulations under the 1981 amend-ments to the program were not published untilthe end of 1986.8 The Labor Department has notgiven the States much technical assistance onhow to combine services from the two programs,The Labor Department’s Region V (Chicago) is

‘Regulations under the TAA legislation passed in 1986 werenot yet published as this report was written (May 1987), but theDepartment of Labor stated that proposed regulations would bepublished no later than June.

4

an exception. This regional office holds quar-terly roundtables for Title III and TAA officialsof the Midwestern States it serves, for exchangeof information and experience. Several of theseState officials volunteered that the help theyget from the regional office in coordinatingTAA with Title 111 is essential. “If not for that,we’d be much further behind, ” said a Wiscon-sin official,

Other problems besides coordination also in-terfere with the best use of TAA training bene-fits. Many trade-affected workers could bene-fit from remedial education, but few States useTAA funds to provide it. In its TAA regulations,the Labor Department classifies remedial edu-cation as a supportive service, so that paymenthas to come from administrative funds, nottraining funds; no State reported using admin-istrative money for this purpose. The Depart-ment does allow the use of TAA training fundsfor remedial education if it is an integral partof a vocational skills training course, and a fewStates (such as Massachusetts) use the fundsin this way. If Congress wants remedial edu-cation to be offered as training in the TAA pro-gram, it could direct the Department of Laborto approve the use of TAA training funds forthis purpose.

Another problem is that under the law, as in-terpreted by the Department of Labor, TAAfunds must pay for all of a worker’s TAA train-ing; contributions from State or local programsor from private sources (such as the companylaying the workers off) cannot be accepted.Funds from other Federal programs can be usedto start a worker’s training, but once TAAmoney begins to be used, funding from otherFederal programs must cease. If Congressdeems it desirable to encourage the combiningof resources to pay for training for trade-affected workers, it could add language to thelaw that explicitly allows it.

Finally, not all displaced workers want or canbenefit from vocational skills training. Anotherpossible way to help trade-affected workers ad-just might be to use a portion of a worker’sTrade Readjustment Allowance as a wage sup-plement, for a limited time. On average, dis-

placed workers take a cut in earnings when theyfind a new job. A limited wage supplementmight help some workers get reemployed soonerthan they otherwise would, and possibly get ahead start on regaining some of their earningpower. There has been very little experiencewith a public program of this sort; how muchit might cost, and whether it might have ad-verse effects that are not anticipated, are un-certain. If Congress is interested in the idea ofa wage supplement, it might wish to authorizea demonstration project,

While TAA training support can be invalua-ble to workers who want training in a new skill,it is difficult to administer because the delaysand unpredictability of TAA certification seri-ously interfere with planning. In setting uptraining for groups of workers, the State agen-cies may have to gamble on getting TAA cer-tification. If all workers from certain designatedindustries were made automatically eligible forTAA benefits, TAA training funds could beavailable immediately.

Industrywide certification might make eligi-bility more equitable, as well as faster and morepredictable, A finding of a decline in sales orproduction would not be necessary for individ-ual firms, Also, in identifying trade-affected in-dustries, import trends over the past decade orso, rather than the past 2 years only, might beconsidered. Sometimes firms in trade-affectedindustries are slow to react, and postpone tech-nological or organizational changes that couldhelp the firm compete but involve reductionsin the work force. Industrywide certificationcould extend TAA benefits to workers laid offfrom firms that make changes in order to meetforeign competition—by adopting new labor-saving technology, or trimming less profitableoperations, or sending some of their work tolower cost countries. Very likely, industrywidecertification would mean that many more work-ers would be eligible for TAA benefits, andneeds for funding would rise substantially.

One difficulty with industrywide certificationis in defining the industries. It has been sug-gested that findings of import injury by the In-ternational Trade Commission might be one ba-

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sis for certifying industries; however, thesefindings are infrequent and narrow, and aremade for purposes other than adjustment assis-tance to workers. If Congress is interested inthe idea of industrywide certification, it mightmake more sense to develop criteria, such astrends in import penetration, import levels, ex-ports, and world market shares, for definingthe industries to be certified.

A much-criticized feature of TAA is the ex-clusion of workers from service and supplierindustries. This gives rise to such anomaliesas shoe workers being ruled eligible, but notthe workers who make rubber heels for theshoes, If coverage of TAA were broadened toinclude firms providing essential services andsupplies to the firms directly affected by im-ports, the number of workers eligible wouldalmost certainly rise. So would funding needs.

Another way to achieve broader coverage isto replace TAA and Title III with one programthat includes the most useful features of eachand is open to all displaced workers. Adminis-tration proposals before the 100th Congresswould do away with TAA and create a newworker readjustment program, adding new fea-tures that are not in the present Title III pro-gram, and authorizing spending of $980 mil-lion per year. The Administration bill for a newdisplaced worker program does not, however,include all the desirable features of TAA, in par-ticular the long-term income support now avail-able to TAA-certified workers in training. Nordoes it include any extended income supportfor unemployed workers who lost their jobs dueto import competition but are not in training.Some version of this feature has been a partof the TAA program since the 1960s. Continu-ation of a program of special benefits to trade-affected workers has strong support on bothsides of the aisle in Congress, on grounds thatit is fair to compensate those injured by nationaltrade policy.

Trade Adjustment Assistance forFirms and Industries

TAA for firms is a small program offeringtechnical assistance to trade-affected firms,which are defined in the law in the same wayas for the worker program. The assistance isdelivered by a dozen regional Trade Adjust-ment Assistance Centers (TAACs), nonprofitentities that are funded by Federal grants aver-aging about $1 million each per year, throughthe Department of Commerce. The programalso offers technical and export assistance toindustries affected by imports, primarilythrough their industry associations. Despite itssmall size (under $16 million for fiscal year1987), TAA for firms is the major Federal pro-gram (with minor exceptions, the only one) thatprovides sustained, intensive technical assis-tance (including advice on finance, marketing,engineering design, and shop floor operations)to small and medium-sized manufacturingfirms. Experience with this modest programmay shed some light on how a more broadlyavailable industrial extension service could con-tribute to the competitiveness of American in-dustry.

Recently, however, Commerce Departmentadministration of TAA for firms has virtuallyparalyzed the program. From October 1986 tomid-March 1987, the TAACS were given only1-to 2-month extensions, mostly no-cost exten-sions with almost no funding from the fiscalyear 1987 appropriation of $13.9 million fortechnical assistance (an additional $1.9 millionwas appropriated for Commerce Departmentadministration). Through the end of April 1987,the Department had not given any 12-monthgrants to the TAACs. Previously, ever since theywere established in 1978, the TAACs had oper-ated on 12-month grants. After an Administra-tion request for rescission of fiscal year 1987funds failed in March 1987, the Department still

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postponed any decision on providing long-termgrants to the TAACs, Instead, it extended theTAACs’ authority only through mid-June, andreleased grant money in limited amounts. Asof the end of April, $2.2 million had been re-leased to the TAACs; $11.7 million remainedunreleased. In May, the Department of Com-merce finally requested refunding proposalsfrom the TAACs, for the period June 1987-May1988. When and if these proposals are ap-proved, the TAACs will receive the remainderof the fiscal year 1987 money.

The effect on the TAACs of the prolongedstarvation for funds and authority was crip-pling. Most were reduced to skeleton staffs.They lacked the money to meet outstandingcommitments to clients, and could not take onany new clients, since they were authorized tostay in business for only a couple of months.TAAC directors told OTA that they had lostlegitimacy with the firms they were meant toserve. g

The Administration has asked for an end tothe TAA program for firms every year since1982, and twice proposed rescissions, both ofwhich failed. Administration officials have saidthey consider the program ineffective and haveargued that in any case it is inevitable for manyfirms to succumb to competition, foreign aswell as domestic, and that the government hasno business trying to save them. Proponentsof the program (including many firms that havereceived assistance from the TAACs) arguethat, given good technical assistance, manyfirms weakened by import competition can re-vive, and continue to provide economic life totheir communities.

Studies evaluating the effectiveness of theTAA program for firms are contradictory anduncertain. The report of the Commerce Depart-

9For this special report, OTA interviewed directors and staffof 11 of the 12 Trade Adjustment Assistance Centers operatingacross the country.

ment’s Inspector General, which called the pro-gram a failure, fails in many ways to fairly judgeits effectiveness. Probably the most appropri-ate way to assess the program is to measureits costs to the taxpayer against benefits to so-ciety. No one has conducted a systematic cost-benefit analysis of this kind. TAA for firms isby its nature high-risk, because firms can qual-ify for assistance only if they show that salesor production have declined due to imports.Evidence from a few firms strongly suggeststhat a few successes a year, resulting in higherincome and property tax receipts from the jobsand firms saved, can more than repay the costsof the program.

Many individual firms that have receivedtechnical assistance from the TAACs have highpraise for the program. Many of the small andmedium-sized manufacturing firms assisted byTAA are operated by one person, with familyhelp. One experienced apparel manufacturerin Georgia gave the TAAC most of the creditfor getting his company out of trouble, by in-troducing him to better cost and quality con-trol methods and helping to pay for advice froman industrial engineer, who suggested improve-ments in the cutting room. Some of the sugges-tions, he said, were “obvious, once they saidit,” but he had been too busy to realize whatchanges needed top priority attention.

The experience of the last year suggests thatappropriation of funds for the TAA programfor firms is not enough to assure its survival.The Budget and Impoundment Control Act of1974 was a response to the problem of an Ad-ministration’s failure to spend appropriatedfunds because of policy opposition to a pro-gram; however, the act does not provide a verydirect remedy. One option that is open to Con-gress, if it wishes the program to continue, isto direct the Department of Commerce to ap-prove 12-month grants to the TAACs by a cer-tain date every year—say by December 31 (theend of the first quarter of the fiscal year),

POLICY ISSUES AND OPTIONS

In light of the Administration’s proposals toabolish Trade Adjustment Assistance for bothworkers and firms, the first issue to consideris the continued existence of both programs.If Congress decides to preserve them, severaloptions for their more effective functioning maybe considered. For the worker program, the ma-jor issues Congress may wish to examine are:

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how to encourage more effective coordi-nation of TAA and Title 111 programs (un-der the Job Training Partnership Act) sothat workers can take advantage of the bestfeatures of each;how to cut back delays, inequities, and in-consistencies in determining eligibility forTAA;how to structure TAA to emphasizeadjustment—that is, training for workerswho can benefit from it and prompt reem-ployment for others; andhow and at what level to fund a programoffering high-quality services to-a b-roadgroup of eligible workers.

For the firm program, the major issue Con-gress may wish to consider is how to put tech-nical assistance for firms on a steady, reliablefooting. Also, options for broadening and sim-plifying eligibility for TAA might be consideredfor firms as well as for workers. The followingsections consider separately the TAA programsfor workers and for firms.

TAA for Workers

Continued Existence

The principal arguments in favor of continu-ing a separate program for trade-affected work-ers are: 1) that fairness demands special atten-tion to the needs of people who pay the mostfor the Nation’s free trade policy, and 2) thata combined program, open to all displacedworkers, is bound to lose some of the valuablefeatures now offered to TAA-certified workers.Some also argue that changes in TAA certifi-cation (discussed below) could remove muchof the delay and inequity in determining eligi-bility.

The main argument against a separate pro-gram is that decisions on who is trade-affectedand who is not have become difficult and arbi-trary. Twenty-five years ago, when trade wasonly a modest factor in the U.S. economy, itmay have been feasible to identify particulargroups of workers affected by trade. Today,when more and more of the goods manufac-tured in the United States are facing stiff worldcompetition, such distinctions are hard to draw,A program offering adjustment services of highquality to all displaced workers, regardless ofthe cause of displacement, would avoid the de-lays and inequities in determining eligibilitythat plague TAA.1

As this report was written, in spring 1987,none of the proposals before Congress for acomprehensive displaced worker program in-cluded all of TAA’s features. The Administra-tion proposal to abolish TAA and replace TitleIII of JTPA with a new displaced worker pro-gram was contained in Subtitle C (the WorkerReadjustment Act) of a bill entitled the Trade,Employment and Productivity Act of 1987 (H.R.1155., introduced by Rep. Michel and others inthe House, and S. 539, introduced by Sen. Doleand others in the Senate). The proposed WorkerReadjustment Act includes a number of newfeatures, such as a requirement that Statesestablish a system for rapid response to plantclosings or large layoffs, and authorizes spend-ing of $980 million per year. This compares tothe appropriation of $223 million for JTPA Ti-tle 111 for fiscal year 1987, and the projectedexpenditure of $206 million for TAA.

The Administration bill would also allow upto 2 years of training for displaced workers (asTAA now does for trade-affected workers) and,if it were determined necessary for participa-tion in training, would provide income support

1In this section, the arguments for and against a separate pro-gram for trade-affected workers are only briefly stated. For afuller discussion, see the section entitled “The Equity Argumentfor TAA, ” under Trade Adjustment Assistance for Workers:Issues.

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at the level of unemployment insurance pay-ments after UI is exhausted. For workers noteligible for UI, a needs-based benefit could beprovided. Thus the bill has a provision for ex-tended income maintenance for workers intraining. However, these payments would notbe granted automatically, as in TAA, but onlyallowed. Also, to be eligible for the payments,the worker must decide to participate in retrain-ing no later than 10 weeks after starting to re-ceive UI. Furthermore, the money to pay forincome support must come out of the fundsavailable for all support services, which includetransportation, health care, special services andmaterials for the handicapped, dependent care,financial counseling, and other reasonable ex-penses necessary for participation in the workerreadjustment programs. Spending for supportservices is limited to 15 percent of the amountavailable for the basic services program (includ-ing training), which is half the total authoriza-tion of $980 million. Thus the maximum avail-able for all support services for people intraining would be $73.5 million per year (as-suming Congress appropriates the amount au-thorized),

Judging by experience, it is not likely that thefull 15 percent would be spent for all suppor-tive services, much less for the single item ofincome support for people in training. Title IIIof JTPA also allows roughly 15 percent of grantmoney to be spent for supportive services, in-cluding income support for participants intraining. In practice, almost nothing has beenspent for this purpose. z In JTPA program year1985 (July 1985 to June 1986), the most recentfor which information is available, 5 percentof Federal grants for Title 111 services was spentfor all supportive services, and no more than7 percent was spent in any previous year; mostof it has gone for transportation and child careexpenses, Possibly, with a program that is more

2By and large, Title III programs do not emphasize vocationalskills training, especially long-term training; most emphasizerapid reemployment and low-cost services. See U.S. Congress,Office of Technology Assessment, Technology and StructuralUnemployment: Reemploying Displaced Adults, OTA-ITE-250(Washington, DC: U.S. Government Printing Office, February1986), pp. 182-185.

generously funded than JTPA Title III, morewould be allocated to income support for work-ers in training, but the Administration billwould not assure income maintenance as TAAdoes.

Even in the unlikely event that the maximumamount allocated for support services weredevoted to income support for people in train-ing, it probably would not go far enough. TheAdministration estimated that the new programwould serve 500,000 displaced workers peryear. In well-run displaced worker projects,about 20 to 30 percent of participants can beexpected to opt for retraining. Supposing that100,000 workers per year (20 percent) selectedtraining, that the average length of training was32 weeks (two semesters), and that the WorkerReadjustment Program provided income sup-port payments for 16 weeks (assuming thatworkers enroll in training after 10 weeks of re-ceiving UI, and that UI pays income supportfor the first 16 weeks of training). In 1987, TRApayments averaged about $147 per week; 16weeks of payments would amount to $2,350;and 100,000 such payments would amount to$235 million per year.

The Administration bill has no provision forextended income support (up to 1 year) for un-employed displaced workers, comparable to theTrade Readjustment Allowances that all TAA-certified workers are entitled to draw. Fewproposals have ever been made for extendingthis benefit to all displaced workers, althoughthe rationale—that people losing jobs becauseof structural economic change are likely to gothrough longer spells without work than theaverage unemployed worker—applies as muchto all displaced workers as to trade-affectedworkers. Such a benefit for all displaced work-ers could cost as much as $2 billion per year. a

The Administration proposal for income sup-port for workers in training falls short of thatnow available to trade-affected workers underTAA. If Congress wishes to combine the two

3Further discussion of this point and the basis for the estimateare in the section entitled “Extended Income Benefits” underTrade Adjustment Assistance for Workers: Issues.

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programs but to preserve the TAA benefit ofreliable income support throughout the periodof training, and extend it to all displaced work-ers, the benefit would have to be made auto-matic, not optional, and it would have to be bet-ter funded.

Coordination of TAA and Title Ill Programs

Should Congress continue to maintain sepa-rate programs for trade-affected workers anddisplaced workers in general, effective coordi-nation of the two programs can be highly advan-tageous to both groups of workers. TAA-certi-fied workers can make use of services in TitleIII programs that are not offered (or effectivelyoffered) under TAA. For example, rapid re-sponse to plant closings and early provision ofservices is all but impossible under TAA, be-cause workers must first petition for certifica-tion and wait for approval, a process that usu-ally takes at least 2 months. Rapid response ispossible under Title 111, though it is not yetwidely in place; several bills before the 100th”Congress would strengthen rapid response ca-pabilities in programs open to all displacedworkers. q Program coordination can alsospread benefits over a greater number of dis-placed workers; when TAA approval comesthrough for trade-affected workers and pay-ment for their training or relocation benefitsis picked up by TAA, Title III funds can be freedfor service to other displaced workers.

The great advantages of TAA are its abilityto support longer term training and income sup-port during training, plus more generous al-lowances for out-of-area job search and relo-cation costs. The greatest strength of Title III,besides the possibility of early response, is thatthese projects offer a wider range of services—especially in counseling and assessment—thanTAA-certified workers usually get from the Em-ployment Service, With better coordination of

4For example, H, R. 1122, introduced by Rep. William Ford andothers, and S. 538, introduced by Sen. Howard Metzenbaum andothers (both entitled the Economic Dislocation and Worker Ad-justment Assistance Act); H .R. 90, introduced by Rep. AugustusHawkins; and the Administration bills, S. 539 and H.R. 1155.

the two programs, Title III projects could of-fer workers the individual counseling they needto evaluate their training and reemployment op-tions, and could provide expert guidance(which many ES offices cannot offer) on localtraining opportunities.

Only about a dozen States have made realprogress toward coordinating their TAA andTitle III programs, but some of these have doneit very successfully. Common features in theseStates are their aggressiveness in making surethat petitions are submitted as early as possi-ble for workers’ TAA eligibility, and their in-genuity in putting together services from eachprogram for the benefit of individual workers.Because TAA certification is not predictable,these States must cope with a high degree ofuncertainty in making training plans.

Some State officials—including some inStates doing an outstanding job of coordina-tion—say that coordination would be easier ifTAA could reimburse Title III programs formoney spent on workers who later get TAA cer-tification, for such services as counseling andassessment, job search skills training, or theearly weeks of vocational skills training courses.The latest law authorizing TAA (the Consoli-dated Omnibus Budget Reconciliation Act of1985, enacted in April 1986) prohibits this kindof reimbursement. So long as money availablefor training, per worker, is more plentiful un-der TAA than under Title III, this idea mighthave the merit of spreading training opportu-nities more equitably among all displaced work-ers. However, with the near exhaustion of TAAtraining funds in the first quarter of fiscal year1987, the reimbursement issue became moot.In the future, if TAA training were funded ata higher level, reimbursement might again be-come a practical question.

Another problem in coordination is that, un-der the law, as interpreted by the Departmentof Labor, once a TAA-eligible worker is ap-proved for training, all the training costs mustbe paid by TAA. Training cannot be approvedin the first place unless the TAA program hasthe funds to pay for all of it, and afterwards

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the funds must be spent.5 In effect, this meansthat no contribution from any private sources,such as the company that laid off the workers,or from State or local governments can be usedto supplement TAA training funds. The lawalso states quite explicitly that no other Fed-eral program can contribute to the costs of TAAtraining once TAA funds are being spent forthe purpose.6 Congress may wish to reconsiderthese prohibitions, and allow TAA programsto combine their own training funds with ad-ditional contributions from companies, com-pany-union funds (such as the United AutoWorkers-Ford and UAW-General Motors nickel-an-hour funds), State programs, and other Fed-eral programs, including federally funded Voca-tional Education and Adult Basic Education.

Another prohibition that could get in the wayof effective service to trade-affected workersis the Labor Department’s decision that TAAfunds may not be used to pay for the job searchworkshops or job finding clubs that COBRA re-quires for workers receiving TRAs. The Depart-ment took the position that the requirementcould mostly be met by other programs, suchas Title III or the Work Incentive Program; thelaw allows a waiver of the requirement if nojob search program is reasonably available. Anumber of States have reported difficulty in pro-viding the job search program, especially forworkers in rural areas, and five States with largenumbers of TAA-eligible workers said they arewaiving the requirement for many workers.Nearly all officials interviewed by OTA ob-served that job search training is valuable, andthose that could not provide the service regret-ted it. If Congress wishes to make the serviceavailable to all TAA-eligible workers, it maywant to consider designating funds for thepurpose.

5This interpretation is based on language in the Omnibus Bud-get Reconciliation Act of 1981 (Public Law 97-35) stating thatthe Secretary of Labor may approve training for TAA-eligibleworkers and that “upon such approval, the worker shall be enti-tled to have payment of the costs of such training paid on hisbehalf by the Secretary” (Sec. 2506(2)(a)].

8This explicit prohibition was added in the Consolidated Om-nibus Budget Reconciliation Act of 1985 (Public Law 99-272),which states that if the costs of training a TAA-eligible workerare paid by TAA, “no other payment for such costs maybe madeunder any other provision of Federal law” (Sec. 13004(3)(A)),

The Department of Labor has asked the Gov-ernors to take steps to promote coordinationof TAA and Title III, but the Department itselfhas not actively encouraged it or offered muchtechnical assistance. Also, TAA regulationswere not published in a timely way from 1981to 1986. The Labor Department has stated, how-ever, that proposed regulations under COBRA(passed in 1986) will be published by June 1987.

If Congress wishes to encourage States in co-ordinating TAA and Title III services, to makethe most of both programs in serving displacedworkers, it might consider the following:

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through legislative guidance in oversighthearings, encourage the Department of La-bor to offer technical assistance to theStates on coordinating the two programsvia the Department’s 10 regional offices;alternatively, require by law that the De-partment do so;amend the Trade Act to allow TAA pro-grams to accept contributions from otherpublic and private sources for training ofTAA-eligible workers;amend the Trade Act to allow reimburse-ment to Title III projects for services givento trade-affected workers before the work-ers are certified for TAA; andprovide a designated fund for offering jobsearch workshops or job finding clubs inStates or areas where the service is nototherwise available.

Reducing Delays and Inequities in TAA Certification

Delays of several months have been commonin getting certification of workers for TAA ben-efits. Delays arise from two causes: 1) ignoranceabout the program, so that workers or their rep-resentatives (union, employer, or any threeworkers) do not submit petitions as soon as theworkers are laid off or get notice of layoff; and2) the process of certifying workers firm-by-firm, which inevitably takes time. To approvea petition, the Labor Department must find evi-dence that import competition contributed im-portantly to the declining sales or productionof the firm laying off those workers. Usually,the Department interviews customers of the

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firm to establish that imports have displacedthe products of that firm.

Outreach.–More energetic outreach, both byState employment security agencies and theU.S. Labor Department, might help to reducedelays caused by lack of knowledge about TAA.One bill before the 100th Congress (H.R. 3,passed by the House of Representatives in April1987) would require States to inform workersabout benefits and procedures under TAAwhen the workers apply for unemployment in-surance, and to facilitate the early filing of TAApetitions. Another possibility is to allow StateGovernors to file petitions on behalf of work-ers. This would give the Governors more re-sponsibility, as well as more opportunity, tomake sure that workers in their States becomeeligible for TAA benefits as quickly as possible.

A number of the State employment securityagencies have suggested that they could do abetter job of acquainting workers with the TAAprogram and seeing that petitions are submittedearly if administrative money were availablein advance, rather than paid after proposals forTAA services are approved. (The State agen-cies receive 15 percent of the amount of train-ing or relocation grants for costs of adminis-tration.) With money provided at the beginningof the fiscal year, they say, they could hire per-manent staff to take care of TAA clients, pro-viding more individual counseling and assess-ment as well as doing a better job of TAAoutreach.

How to allocate the money among (and alsowithin) States is the problem with providingadministrative funds in advance. It is hard topredict where trade-affected workers will beconcentrated. If the administrative funds wereallocated by the same formula as Wagner-Pey-ser grants (the Federal grants which are themain source of funding for the State employ-ment security agencies), the funds might turnout to be poorly matched with the number ofworkers certified for TAA benefits. This isspeculative, however. There is no reason to be-lieve that TAA certifications accurately reflectthe geographic or industrial distribution oftrade-affected workers. Some States have done

a much better job of outreach than others, andlabor unions are active in submitting petitions,so that unionized workers have a better chancethan non-union workers to be certified, Wagner-Peyser grants are allocated by a formula thattakes account of the size of the State’s laborforce and its rate of unemployment. If advanceallocation of TAA administrative funds suc-ceeded in getting State agencies to do betteroutreach, the result might be a wider and moreequitable distribution of TAA benefits than ex-ists at present, It probably would also raise de-mands for funding for the program.

If advance allocation of administrative fundsappears desirable, one option might be to allo-cate a portion, not necessarily all of it.

Industrywide Certification.-The Labor Depart-ment recently improved turnaround time forTAA petitions by simplifying procedures anddelegating to its regional offices some of thetasks of collecting information. However, evenif all decisions are made within the statutorylimit of 60 days, a delay of several weeks makesit impossible to deliver adjustment servicespromptly to TAA-certified workers. One pro-posal to reduce delays is to certify whole in-dustries, so that all workers displaced from jobsin those industries are automatically eligiblefor TAA benefits. Industry certification mightalso make eligibility more predictable and moreequitable,

A difficulty with industry certification is that,as eligibility becomes more equitable and wide-spread, needs for funding to serve the largernumber of eligible workers would rise. In addi-tion, it may not be a simple matter to identifytrade-affected industries, H.R. 3, the trade billpassed by the House in April 1987, in the 100th”Congress, provides for automatic approval ofpetitions from workers losing jobs in industriesthat the International Trade Commission [ITC]has found, under Section 201 of the Trade Actof 1974, to be seriously injured by imports. (Theworkers’ petitions would have to be filed within3 years of the finding of serious in jury.) Sec-tion 201 findings are few and quite limited,however. In responses to twelve Section 201petitions in fiscal years 1984 through 1986, the

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ITC found only four industries to be seriouslyinjured by imports, and some of those indus-tries were very narrowly defined; one, for ex-ample, was wood shingles and shakes.7

A fundamental problem with using ITC find-ings as a basis for industry certification is thatthese findings are made for entirely differentpurposes. In the case of Section 201 findings,the purpose is to allow a nation to provide someimport relief, which would otherwise be ille-gal under the General Agreement on Tariffs andTrade, to hard-pressed domestic industries.Probably one reason there has been so little useof this “escape clause” is that import relief fordomestic industries, even if justified by a find-ing of serious injury, has important repercus-sions on the economies of both the UnitedStates and our trading partners.

Another possibility is to certify industries thathave an ITC finding of import injury in rela-tion to charges of dumping by foreign compe-titors, or of government subsidies that give com-petitors an unfair advantage (anti-dumping andcountervailing duty investigations, under Ti-tle VII of the Tariff Act of 1930). These find-ings are much more numerous than those underSection 201—56 in fiscal years 1984-86, com-pared to 4 under Section 201.8 These findings,although somewhat broader than those underSection 201, still tend to be quite specific. In

7The industries receiving an affirmative finding of serious in-jury from imports in fiscal years 1984-86 were certain carbonand alloy steel products, unwrought copper, non-rubber foot-wear (1985), and wood shingles and shakes, Negative findingswere made for stainless steel flatware, non-rubber footwear(1984), canned tuna, electric shavers and parts, certain metalcastings, apple juice, and steel fork arms. The fact that non-rubberfootwear was turned down for a finding of serious injury in 1984and accepted in 1985 suggests that these findings may not bevery predictable or consistent.

@This includes all final affirmative findings under the anti-dumping and countervailing duty provisions of the Tariff Act.Final affirmative findings, made after a final investigation bythe ITC and the Department of Commerce, indicate that “a U.S.industry is materially injured or threatened with material injury,or the establishment of such an industry is materially retarded,by reason of imports of merchandise that is being sold at lessthan fair value (i.e., dumped) or is benefiting from foreign subsi-dies.” (U.S. International Trade Commission, Annual Report ’85(Washington, DC: U.S. Government Printing Office, 1986), p. 2.)Preliminary affirmative findings are made after a preliminaryinvestigation by the ITC, and indicate that “there is a reason-able indication” of injury. (Ibid. ) There were 208 preliminaryfindings of injury in the 3 years 1984-86.

1985, for example, of 129 investigations com-pleted, 56 involved narrowly defined steel prod-ucts such as hot-rolled carbon steel plate, car-bon steel wire rod, stainless steel sheet andstrip, welded carbon steel pipes and tubes,stainless steel wire cloth, carbon steel sheets,and steel wire nails.9 Also, these findings aremade only in connection with charges of dump-ing or subsidies, and thus do not cover thewhole range of industries that might be import-affected. Using the ITC finding of import in-jury as a trigger for certification of an industrywould be at best a partial answer to certifica-tion of workers by industry, rather than by in-dividual firm.

Along the same line, another trigger for in-dustry certification might be the existence oftrade agreements by which other countriesvoluntarily agree to limit exports of certain arti-cles to the United States. An example is theVoluntary Restraint Agreement for autos,which Japan observed from 1981 to 1985 (andcontinues to observe voluntarily through 1987),the Multifiber Agreement (negotiated in 1974)covering textiles and apparel, and a numberof Orderly Marketing Agreements. 10 T h e s eagreements might be taken as evidence thatAmerican industries are seriously threatenedby foreign competition in the items covered,

Another possible approach is allow indus-tries, as well as firms, to petition for certifica-tion as trade-affected. To decide on the peti-tions, the Labor Department would need toidentify trade-affected industries. This mightbe done by examining data for employmenttrends, import penetration in the U.S. market,import levels, exports, and share of world mar-kets, by industry. A part of the responsibilityfor such an effort already rests with the Depart-ments of Labor and Commerce; Section 282 ofthe Trade Act directs them to monitor changesin U.S. imports and related domestic produc-tion and employment. However, data on ex-

BIbid., p. 3.IOThe number of these agreements in force is, at fJIWeIIt, Un-

known. The Department of Commerce and the Office of the U.S.Trade Representative told OTA that there is no current countof such agreements, but the USTR plans to make a compilationand keep it up to date.

13

ports and world market shares are more limited.A 1982 paper by a Bureau of Labor Statisticseconomist analyzed 318 manufacturing indus-tries at the four-digit SIC level, and concludedthat 72 were “import sensitive, ” that is, had ex-perienced either a sustained high level or a sub-stantial increase in import share of U.S. salesduring 1972-79.11 Of 79 industries producinggoods similar to those in the import-sensitivegroup, 38 showed employment declines overthe period; more than half of these were in thetextile, apparel, and leather goods manufactur-ing businesses, The Labor Department has notrepeated this analysis, but the data to do so areavailable.

In its program of industrywide technicalassistance under TAA, the Department of Com-merce needs to identify import-affected indus-tries. The Department’s method is, first to de-fine the industry by four-digit SIC, and thendetermine whether it has a significant numberof firms, worker groups, and workers certifiedas eligible for TAA. Then, the Department ex-amines trends in import penetration ratios andlevels of imports over several years. The De-partment also considers ITC findings of importinjury (if any), and examines data developedby industry representatives on particular prod-uct lines, especially for industries that don’tneatly fall into SIC codes, Because the Com-merce Department does not need to be com-prehensive in selecting industries for techni-cal assistance, but can be selective, it is not anexact model for possible industrywide TAA cer-tification for workers. It can be useful as aguide, however, in how to identify trade-affectedindustries.

Because of lack of experience, there are manyuncertainties in both the method and resultsof certifying workers for TAA benefits by in-dustry. For example, the impacts from foreigncompetition are now so widespread through-out American manufacturing industries, thatthe result might be to open the TAA programto nearly all workers displaced from manufac-

llGregory K. Schoepfle, “Imports and Domestic Employment:Identifying Affected Industries, ” hfonthl~ Labor Review, Au-gust 1982, pp. 13-26.

turing jobs, The total number of workers dis-placed per year because of plant closings andproduction cutbacks is about 2 million per year;about half (approximately 1 million per year)are from manufacturing industries, If Congressis interested in pursuing the idea of indus-trywide certification for workers, it might di-rect government agencies, such as the Depart-ments of Labor and Commerce, to undertakea study of possible methods of identifying theindustries and the number of workers likely tobe covered, with results reported back to Con-gress within a reasonable time (e.g., 1 year).

Other Problems of Equity.—A continuing problemof equity in TAA certifications is that workersin service and supply industries are not eligi-ble. For example, many workers in oil and gasexploratory drilling have been denied certifi-cation because they were considered serviceindustry workers. (Others were turned downbecause the Labor Department did not considerimports to be the cause of distress in the indus-try.) Several bills in both the 99th and 100th Con-gresses proposed to extend eligibility to all oiland gas workers. More generally, the legisla-tion that would have reauthorized TAA, butfailed to pass Congress in December 1985, (theConsolidated Omnibus Budget ReconciliationAct) would have extended eligibility to work-ers in firms providing essential parts or essen-tial services to the firms injured by import com-petition, S. 23 introduced by Senators Roth andMoynihan in the 100th Congress, contains thesame provision, This broadening of eligibility,like industrywide certification, would result inopening TAA benefits to more workers, andraising costs. COBRA proposed to generatefunds for TAA from a new source, a small uni-form duty on all imports (described in the sec-tion on funding, below).

A more specialized problem, but one that af-fects a good many workers, has to do with thedate of the worker’s separation. Under thepresent law, workers may receive income sup-port payments (Trade Readjustment Allow-ances, or TRAs) during a 2-year period follow-ing their first layoff after the impact dateestablished for their firm. Often during a firm’sdecline, workers are repeatedly rehired and laid

14

off; since the clock for TRAs starts to run fromthe date of their first layoff they maybe deniedfull benefits. Congress addressed this problemin the last authorization of TAA, by extendingthe period of eligibility from 1 year to 2 yearsafter the first date of separation; some work-ers, however, still run into a cutoff of benefits,while coworkers who were not rehired and laidoff repeatedly may receive full benefits. Onebill before the 100th Congress (S. 749, intro-duced by Senators Mitchell and Heinz) wouldamend TAA to allow workers to collect TRAsduring the 2-year period following their last,not first, date of separation.

If Congress wishes to attempt to reduce de-lays in TAA certification, it might consider thefollowing:

●

●

●

●

through legislative oversight, encouragethe Department of Labor to offer more in-formation and technical assistance to Stateemployment security agencies on the TAAprogram and urge them to take a more ac-tive role in getting petitions submittedearly; alternatively, require in legislativelanguage that States inform workers ofTAA benefits and procedures when work-ers register for UI, and facilitate the earlyfiling of TAA petitions;provide by law for the allocation of TAAadministration funds in advance;direct the Labor Department to give auto-matic approval to petitions from workersin industries with findings of import injuryfrom the ITC or industries covered byvoluntary agreements with other countriesthat restrict their exports to the UnitedStates; ordirect the Departments of Labor and Com-merce (and any other appropriate agency)to undertake a study of possible methodsfor industrywide certification of TAAworkers and the number of workers likelyto be covered, with a date set for submis-sion of the study report to Congress.

Some of the above options might make TAAbenefits available to a larger number of work-ers and at the same time distribute the benefitsmore equitably. Another option for more equi-

table and broader eligibility that Congress mightwish to consider is to:

● extend TAA eligibility to workers in firmsthat supply essential supplies and servicesto firms injured by import competition.

Emphasizing Adjustment Services

Several times in the 25 years of TAA’s exis-tence, Congress has made changes in the pro-gram to reemphasize its original purpose, thatis, to provide services that will help trade-affected workers find or train for new jobs thatare reasonably well-paid or offer opportunitiesfor advancement. In the 1980s, training andrelocation services have become a more signif-icant part of the program, in relation to TRAs.Under the present law, workers must take partin a job search skills training program or jobclub (if either is reasonably available) in orderto receive TRAs, must be advised of trainingopportunities, and must enroll in training if ad-vised to do so.

A number of proposals put before Congresswould tie TAA benefits still more tightly totraining. In the 1985 legislation that would havereauthorized TAA, Congress included a re-quirement that any worker collecting TRAsmust be enrolled in training or remedial edu-cation. In 1986, when the legislation waspassed, the requirement for training was re-moved. Bills before the 100th Congress rein-stated it. For example, H.R. 3, the House-passedtrade bill, would require workers receivingTRAs to be in training or remedial education.Workers would be exempt only if they had al-ready completed training, or if they had a rea-sonable prospect of recall to the old job, or iftraining were not considered feasible or appro-priate. S. 23 would also require that workersreceiving TRAs be in training, unless Stateagencies waived the requirement because train-ing was not feasible or appropriate.

Several problems arise with a requirementthat workers receiving TRAs be in training.First, funding for training would have to begreater than it is now. Training funds were vir-tually exhausted before half the fiscal year was

15

out in 1987, even with no requirement for train-ing. The Labor Department estimated that about55,000 workers would receive TRAs in fiscalyear 1987; as noted above, that figure is prob-ably low, but it can serve as the basis of a roughestimate of training costs. Assuming on the ba-sis of recent TAA figures that spending fortraining is about $2,500 to $3,000 per workerper year (not counting TRAs), the annual costof training for 55,000 workers would be about$138 to $165 million, or approximately $110 to$127 million more than in 1987. Both H.R. 3and S. 23 provide that workers are entitled tovouchers of $4,000 for approved training, re-medial education, or relocation services andthe money may be spent over 104 weeks of train-ing. Both bills also contain a provision for asmall import duty as a new source of funding(see the discussion below).

Another concern is that not everyone needsor can benefit from training. For example, someolder workers who plan to work for only anotherfew years may not want to make the investmentof time, effort, and forgone income that train-ing requires. (No implication is intended thatolder workers cannot benefit from training;some can and do.) A related problem is that link-ing TRAs to training might artificially inflatethe demand for training. One option that mightreduce these difficulties is to allow workers touse a portion of their TRAs as a temporary wagesupplement, easing the transition for workersfor whom retraining is not appropriate. Thisoption was included in H.R. 3; it would allowworkers taking a new job at lower pay than theold job to collect 50 percent of their TRA bene-fits as a supplemental wage allowance over aperiod of 1 year, beginning when regular UIpayments end, The reasoning is that the sup-plemental wage would encourage workers totake new jobs faster than they otherwise would,and begin to restore some of their lost earningpower. The allowance would be limited to anamount that would raise the worker’s pay toa maximum of 80 percent of the pay on the oldjob.

In analyzing for an earlier assessment the op-tion of a temporary supplemental wage for all

displaced workers, 12 OTA noted that there islittle or no experience with a publicly fundedprogram of this sort, and cost estimates arehighly uncertain, A rough estimate of the costof such a program as proposed in H.R. 3 is about$33 million per year for every 10,000 workers.This estimate assumes that the wage supple-ment program pays, on average, the differencebetween $7.80 per hour (80 percent of the aver-age manufacturing wage of $9.80 per hour inearly 1987) and $6.20 per hour (the averagereemployment wage of workers who wentthrough Title III programs and found jobs in1986) .13 Any estimate of how many workerswould be covered in such a program, and howmany would be removed from the rolls of thosereceiving full TRAs, must be highly specula-tive because of the novelty of the program. Inlight of the large uncertainties involved, OTAsuggested in the earlier assessment that if Con-gress is interested in the proposal, a trial or dem-onstration program might be a practical firststep.

According to the directors and staff of dis-placed worker projects, many of their clients—typically, 20 percent or more—need remedialeducation to improve their basic skills in read-ing and math. Although States may offer reme-dial education as one of the services in TitleIII projects, not many do. 14 T r a d e - a f f e c t e dworkers are probably just as much in need ofbasic skills training as other displaced work-ers, but remedial education is very infrequentlyoffered as a TAA benefit, In its TAA regula-tions, the U.S. Department of Labor classifiesremedial education as a support service, un-less it is an integral part of a vocational skillstraining course, Payment for support servicesmust come from administration funds, nottraining funds; no States reported to OTA thatthey use administrative money for this purpose.The 1986 legislation reauthorizing TAA states

IZU. S. congress, office of Technology Assessment, Technol-ogy and Structural Unemployment, op. cit., pp. 61-62.

IQThe Supplement on an hourly basis would be $1.60, whichis $64 per week and $3,328 for 1 year. This is within the limitof 50 percent of the average TRA benefit paid in 1987, whichwas $147 per week.

Iiu. s. congress, Office of Technology Assessment, Technol-og.yand Structural Umemp]oyment, op. cit., pp. 185-186, 260-261,

16

that any training program provided by Statesin Title III projects may be approved as TAAtraining; a number of States approve remedialeducation as training under Title III (althoughnot many actually include it among the serv-ices offered), and all could approve it if theywished. If Congress desires that remedial edu-cation be offered as training in the TAA pro-gram, it could direct the Department of Laborto approve this use of TAA training funds.

Implementing a training requirement througha voucher system, as proposed in several billsbefore Congress, might raise some other prob-lems. Many experienced directors of displacedworker programs believe that their clients ben-efit greatly from guidance in selecting trainingcourses. It is not uncommon for displacedworkers to have held just one job in their lives;often they have little knowledge of the local la-bor market, or training institutions, or the kindof training that their background and skills arebest suited to. In addition, a voucher systemraises the danger that workers may be victim-ized by trainers who are in it for the money.When training is not just one option, but is re-quired for anyone receiving TRAs, this prob-lem could assume greater proportions. Coordi-nation of TAA and Title III programs, withemphasis on adequate counseling and guidanceof TAA-eligible workers in one program or theother, could help to avoid the danger of mis-guided or wasted training.

Some of the options that Congress may wishto consider for emphasizing adjustment as thegoal of the TAA program for workers are thefollowing:

●

●

require that recipients of TRA benefits beenrolled in approved vocational skills train-ing or remedial education programs, withsome exceptions, e.g., for workers whomay be recalled to plants that are still inoperation, for workers beyond a certainage, or for cases where training is not fea-sible or appropriate;support a demonstration program of tem-porary wage supplements for TAA-certi-fied workers taking a new job at a substan-tial cut in pay; and

● direct the Department of Labor to approvespending of TAA training funds for reme-dial education.

Funding

Many of the options discussed above implya higher level of funding than is currently spentfor TAA. In fiscal year 1987, Congress appro-priated $29.5 million for training and reloca-tion services (including 15 percent for admin-istration); and when demands for the fundsoutran the supply, a supplemental appropria-tion of $20 million was approved by the House(the Senate Appropriations Committee had re-ported the bill, but the Senate had not yet actedon it as this report was written). In addition,spending for TRAs, from the Federal Unem-ployment Benefits Account, was running at therate of $176 million for the year.

A number of proposals before the 100th Con-gress provided for increased spending for serv-ices to displaced workers. Both the Adminis-tration bill, which would replace JTPA Title IIIwith a new Worker Readjustment Program, andH.R. 3, which amends Title III as well as TAA,would authorize $980 million a year for retrain-ing and readjustment programs open to all dis-placed workers.

For funding the TAA program for workers,the idea of a small uniform duty (up to 1 per-cent) on all imports has come up several times.It was included in the legislation which wasreported by the conference committee, butfailed to pass the Congress, in December 1985.That version directed the President to under-take negotiations to change GATT so that anycountry could impose a small duty on importsfor the purpose of funding a program of adjust-ment to import competition. The President wasdirected to report on progress on the GATT ne-gotiations in 6 months, and the duty would beimposed as soon as there was agreement—butin any case, whether or not agreement wasreached, the duty would take effect 2 years af-ter enactment of the law. The bill also wouldhave established a trust fund to pay for the TAAprogram for workers, with amounts equal tothe proceeds of the import duty earmarked forthe trust fund.

17

A similar proposal was before the 100th Con-gress, in S. 23. H.R. 3, the House-passed tradebill, provides for a trust fund supported in partby a small import duty, but would let the dutytake effect only when GATT is changed to al-low it.15 Those who propose negotiating withGATT, but imposing the duty anyway after acertain period, argue that a small duty for fund-ing an adjustment program is reasonable, is nota serious barrier to trade, and that GATT ne-gotiations are usually so slow that a time limitis needed to impel action. Those who opposeit argue that any unilateral action that contra-venes GATT undermines the treaty and opensthe door to protectionist actions by all countries.

The proposal to support the TAA programthrough a trust fund is not new. The Trade Actof 1974 provided for it, but the trust fund wasnever established. The Office of Managementand Budget generally opposes earmarking fundsfor any activity, advocating instead that pro-grams contend on their merits each year fora share of general revenues; this was true inthe Carter Administration as well as in the Rea-gan era. Although laws can be written so thatservices funded by trust funds are not grantedautomatically but still require approvals by theresponsible agency, the tendency may be to losebudgetary control.

The argument for a trust fund is that it is dif-ficult to anticipate the magnitude of worker dis-placement, from trade or any other cause, andthat it makes more sense to draw from a trustfund as needed than to set appropriations atthe right level in advance, or to add fundsthrough the uncertain and usually slow proc-ess of supplemental appropriations. Proponentssometimes draw the parallel with the unem-ployment insurance trust fund accounts, whichare supported by variable UI tax rates. In a likemanner, the uniform duty on tariffs could bevaried (up to the limit of 1 percent), to replen-ish the account when spending has risen, andto lower the duty when spending falls. To main-tain control over spending, Congress might set

15This bill would also support the trust fund with money raisedfrom import relief duties and from public auction of importlicenses.

a limit on the total that could be spent in anyyear.

Other funding arrangements might also bedevised. For example, the Forest Service drawsthe funds needed to fight fires from a specialaccount, which Congress then replenishesthrough supplemental appropriations. A num-ber of different kinds of trust funds, with re-strictions on spending from them, exist in vari-ous Federal Government agencies; some mightprovide a useful model for the TAA program.The principle in a trust fund or other new fund-ing arrangement would be to make money avail-able when needed for services to trade-affectedworkers, but keep total spending under control.

TAA for Firms and Industries

Continued Existence

In reauthorizing the TAA program for firmsin 1986 and appropriating funds for it, for thatfiscal year and the next, Congress made a de-cision to continue the program. Commerce De-partment administration of the program fromJanuary 1986 through the spring of 1987 almostbrought it to an end. At the end of April 1987,more than halfway through the fiscal year, only$2.2 million of the $13.9 million Congress pro-vided for technical assistance to trade-affectedfirms and industries for that year had been ob-ligated, and money carried over from the pre-vious year was diverted to other uses. The TradeAdjustment Assistance Centers, which delivertechnical assistance to firms, had been givenonly brief 1- or 2-month extensions of author-ity (mostly no-cost extensions), and were ableto do little more than keep their doors open.16

In the Budget and Impoundment Control Actof 1974, Congress tried to deal with the prob-lem of an Administration refusing to spendmoney Congress had appropriated to carry outa program. Under terms of this law, the Admin-istration proposed in January 1987 a rescissionof fiscal year 1987 funds for the TAA programfor firms. The proposal remained before Con-

Y~ln early May, the Department of Commerce requested refund-

ing proposals from the TAACS for the 12-month period June 1987to May 1988.

18

gress for the 45 days provided by the law, andin mid-March, since Congress had taken no ac-tion, the rescission failed. Through that period,only three TAACs received any fiscal year 1987money. After the rescission failed, the TAACsreceived extensions only through mid-June, andwere given small grants.

A spokesman for the General Accounting Of-fice informed OTA that this situation, underwhich the Administration had released onlysmall amounts of the funds appropriated fortechnical assistance to firms, was being inves-tigated as a possible policy deferral, as de-scribed in Section 1013 of the Budget Act; ina policy deferral, the Administration seeks towithhold funds to achieve the President’s pol-icy, as opposed to that of Congress. If GAOfound that the failure to spend funds for theTAA program for firms was a policy deferral,Congress could deal with the situation, as it hasdone in several deferral cases in the past, byenacting a law directing the President to spendthe appropriated funds as originally providedby Congress. 17

The Administration has also asserted that thePresident has inherent authority to defer spend-ing, unless Congress has mandated a scheduleof expenditures. One option that is open to Con-gress, if it wishes to assure that Trade Adjust-ment Assistance Centers receive grants soonenough and for a long enough period to getsome substantive work done, is to mandate adate by which 12-month grants for the TAACsmust be approved. For example, Congressmight direct bylaw that by December 31 of eachyear (the end of the first quarter of the fiscalyear) the Commerce Department must approve12-month grants extending through the end ofthe next calendar year for all the TAACs. Thus,all the money appropriated for TAA assistanceto firms for the fiscal year would be obligated

ITS~C+ lola~] of the Budget and Impoundment Control Actgave Congress authority to disapprove policy deferrals by a voteof either the House or the Senate, after which the ComptrollerGeneral could sue the responsible department or agency to spendthe funds as provided by Congress. However, a Circuit Courtof Appeals decision has held Sec. 1013(b) invalid, following the1983 Supreme Court decision declaring a congressional veto un-constitutional (Immigration and Naturalization Service v. Chack1983).

in a timely way. Experience in fiscal year 1987suggests that legislative guidance through con-gressional hearings might not be sufficient toassure the continued existence of the TAA pro-gram for firms. Also, if Congress desires theprogram to continue, it may need to anticipatea period of rebuilding. It may take some time—possibly a year or more—for TAACs to rebuildtheir staffs, services, and credibility withclients.

One reason the Administration wishes to endthe TAA program for firms is that it considersthe program ineffective. Neither of the two re-cent evaluations of the program (which cameto opposite conclusions) is satisfactory. In con-sidering the future of the program, Congressmight wish to request an independent evalua-tion of TAA for firms, including an analysisof the social costs and benefits of the program,from the Congressional Budget Office or theGeneral Accounting Office. A rigorous cost-benefit analysis might prove an unduly expen-sive way to evaluate this rather small program.However, a less rigorous analysis might pro-vide enough information to judge whether ben-efits from a very few successful interventionsare enough to pay for the modest costs of theprogram.

Industrywide Certification

It has been suggested that the TAA programfor firms might be more productive if all firmswithin a trade-affected industry were eligibilefor technical assistance–not just those thathave already shown a decline in sales or pro-duction and employment.18 The idea is to openTAA benefits to firms that have a better chanceof survival.

One difficulty with this approach, as with in-dustrywide certification of workers, is that thepopulation of firms eligible for assistance wouldballoon. Unless the program received morefunds, the TAACs would be faced with greaterselection and screening problems than they

18H.R. 3, the House-passed trade bill, provides for automaticapproval of petitions from firms, as well as workers, from in-dustries found by the ITC to be seriously injured by imports.As noted, these certifications are few and often quite narrow.

19

have now; unlike the situation with TAA forworkers, there are no current proposals for anew source of funds for TAA for firms. Noris there quite the same justification for indus-trywide certification. One of the strongest find-ings from experience with displaced workersprograms is that the earlier adjustment serv-ices start, the better the results; the best timeto begin services to workers is before layoff,if that is possible. It is true that, for firms, thereis a point after which assistance is not muchuse; the firm is too far gone. But no one hasidentified one key point for offering assistancethat promises the best results. Most of theTAAC directors and staff interviewed by OTAsaid that quite a few of the firms applying forcertification have enough financial or man-agerial strength that they can benefit from assis-tance. One said:

All of them are in some kind of trouble, orthey wouldn’t come to us and wouldn’t be cer-

tified. But it isn’t true that they all have onefoot in the grave and the other on a bananapeel.

The best argument for making technical assis-tance available to all firms in trade-affected in-dustries is that such a program, if well done,might help to improve competitiveness of ournational economy. But to expand the presentsmall, barely surviving TAA program to suchdimensions would be a very large leap. The ideaof an industrial extension service for small andmedium-sized manufacturing industries is anintriguing one, but is probably best approachedin several steps, with consideration of a num-ber of factors—for example, whether Statesmight play a leading role, building on servicesthat some of them already offer. Such an assess-ment is beyond the scope of this report, withits focus on TAA programs as they exist nowor as they might be changed incrementally.

TRADE ADJUSTMENT ASSISTANCE: HISTORY

Trade Adjustment Assistance was created inthe Trade Expansion Act of 1962, as recom-pense for workers and businesses hurt by theNation’s policy of lowering trade barriers. Theprogram was intended not as a payoff but asan aid to adjustment. “This cannot and will notbe a subsidy program of government paternal-ism,” said President Kennedy in announcingthe trade bill that created TAA. “It is insteada program to afford time for American initia-tive, American adaptability and American re-siliency to assert themselves. ” Two linked mo-tives for TAA were fairness—the obligation, asPresident Kennedy said, “to render assistanceto those who suffer as a result of national tradepolicy’’—and the need to find a different waythan protective tariffs or quotas to cope withthe disruptive effects of trade,

In principle, the TAA approach, offering ad-justment assistance in place of protection, fitswith a policy of free trade. In practice, ques-tions have been raised since TAA was createdon whether the adjustment assistance wasreally working. Was TAA meeting its goal ofhelping displaced workers train for and findnew jobs and helping businesses adapt to thechallenge of rising imports? Is it reasonable toexpect that firms losing out to imports can re-cover, even with good technical assistance?

Another recurring question had to do withfairness: Is it equitable or even possible to dis-tinguish between job losses due to trade andlosses due to other (but related) factors, suchas advances in technology or changes in con-sumer preference? Does the worker who losesa long-held job because of import competitionneed more help than his neighbor who losesout to automation? Or is there a special respon-sibility to workers affected by trade? A nationalprogram to help all displaced workers find ortrain for new jobs was created in Title III ofthe Job Training Partnership Act of 1982 (JTPA),but TAA has some benefits that do not existin the Title III program.

Arguing that trade-affected workers can beserved in a program open to all displaced work-

20

ers, the Administration has proposed to abol-ish TAA, to replace Title III of JTPA with a newworker readjustment program, and to author-ize funding for the new program at about twicethe current level of TAA and Title III fundingcombined. The Administration bill does not,however, include all the benefits now availableto TAA-certified workers. While proposing toend TAA for workers, the Administration tookmore forceful action to close out the TAA pro-gram for firms, asking for a budget rescissionin 1987 (which Congress did not approve) andmeanwhile granting such short-term low-levelfunding that program activities virtually ceased.

Trade Adjustment Assistance for both work-ers and firms continues to have strong supportin Congress. The equity argument, that specialhelp is due those who are injured by the Na-tion’s trade policy, is widely accepted acrossparty lines. In 1986, Congress reauthorizedTAA and extended it for 6 years, through theend of 1991. While rewriting trade legislationin the spring of 1987, Congress again consid-ered substantial changes in TAA, in particularthe program for workers, The emphasis in theproposed changes was on making adjustmentservices stronger and more flexible.

This section outlines briefly the experiencewith TAA over the past quarter of a century.The next two sections discuss issues related,first, to the current operation and future of theprogram for workers and second, to the pro-gram for firms and industries.

Trade Adjustment Assistance for Workers,1962-87

Over its 25 years, TAA for workers has beenmuch more a compensation than a training pro-gram, whatever the intentions of its founders.The benefits TAA offers to trade-affected work-ers are extra income maintenance (more thanunemployment insurance provides) and train-ing and relocation assistance. Of $4.5 billionspent on the program over the years, more than97 percent has gone for income maintenance;

21

nearly all the workers certified for TAA havereceived this benefit. However, training hasbeen a stronger part of the program in the 1980s;training and relocation assistance has ac-counted for about 25 percent of spending since1982. Demands for training were great enoughin early 1987 that the appropriation for the fis-cal year—$29.9 million—was nearly exhaustedat the end of the first quarter.

Spending for TAA and the number of work-ers served has fluctuated greatly over the years,Almost inactive for the first dozen years, theprogram grew to large proportions by 1980(costing $1.6 billion that year], was restructuredand sharply reduced in the early 1980s, and isnow again expanding, It is a sizable programtoday. In addition to the $29.9 million for train-ing and relocation assistance, spending for in-come maintenance is projected to be $176 mil-lion for fiscal year 1987. If workers continueto be certified at the same rate as in the firsttwo quarters of the year, 110,000 to 140,000workers will have become eligible for benefitsduring the year. ’ Both in amount of spendingand in number of workers served, TAA is nowabout as large a program as the general pro-gram, under Title III of the Job Training Part-nership Act of 1982, which is open to all dis-placed workers,

Administration of TAA for workers is dividedbetween the State employment security agen-cies and the U.S. Department of Labor, TheLabor Department makes the decisions on cer-tifying groups of workers as trade-affected, ac-cording to the criteria in the law. The Stateagencies, under cooperative agreements withthe Labor Department, determine the eligibil-ity of individual workers covered by a certifi-cation, and process applications for benefits.The Unemployment Insurance (UI) offices takecharge of income maintenance payments, and

1Nearly 48,000 workers were certified in the first quarter offiscal year 1987, and about 22,000 in the second quarter. TheLabor Department simplified and speeded up the certificationprocess at the beginning of the first quarter. Thus, the excep-tionally large number of certifications in the first quarter prob-ably reflects the Department’s efforts to reduce a backlog of pe-titions If certifications for the last half of the fiscal year run atthe rate of the second quarter, the total for the year will be about114,000.

the Employment Service (ES) is responsible forhelping workers find jobs or training opportu-nities.

Creation and Early Years: 1962-74

The Trade Expansion Act of 1962, authoriz-ing the Kennedy round of trade negotiationsunder the General ‘Agreement on Tariffs andTrade (GATT), also created Trade AdjustmentAssistance, Labor spokesmen strongly sup-ported the adjustment program as a part of thelaw. George Meany, president of the AFL-CIO,told the Senate Finance Committee:

There is no question whatever that adjust-ment assistance is essential to the success oftrade expansion. And as we have said manytimes, it is indispensable to our support of thetrade program as a whole.2

To the House Committee on Ways and Meanshe said that TAA would:

. . . strengthen both our domestic economyand our world competitive position by help-ing companies and workers to increase theirefficiency, either in their present field or a newone.3

Eleven years later, labor support for TAA hadevaporated. Meany called TAA “burial insur-ance” and said that “adjustment assistance can-not solve modern trade problems.”4 By the early1970s, there was good reason, aside from thesuccess or failure of TAA itself, to reevaluatetrade policy. Economic and trade conditionshad changed. The United States had gone througha recession in 1970, and in 1971 and 1972 ex-perienced its first merchandise trade deficitsin many decades. However, there was also aquite specific reason for labor’s disaffectionwith TAA, which was that very few workershad benefited from it. The eligibility require-

2Hearings before the Committee on Finance, U.S. Senate, July24, 1962, cited in Steve Charnovitz, “Worker Adjustment: TheMissing Ingredient in Trade Policy, ” California ManagementReview, vol. xxvii, No. 2, winter 1986.

3Hearings before the Committee on Ways and Means, U.S.House of Representatives, Mar. 19, 1962, cited in Steve Char-novitz, op. cit.

4Hearings before the Committee on Ways and Means, U.S.House of Representatives, May 17, 1973, and the Committee onFinance, U.S. Senate, March 27, 1973, cited in Steve Charnovitz,op. cit.

22

ments as laid out in the 1962 law and as inter-preted by the administering agency, the U.S.Tariff Commission, were so restrictive that noone qualified from 1962 till 1969. The TariffCommission then reinterpreted the eligibilityrules, and for the first time approved some pe-titions; still, only about 54,000 workers had beencertified for benefits by 1975.

The TAA benefits for workers provided inthe 1962 law were training, relocation assis-tance, and extra income maintenance, at ahigher level and for a longer time than UI af-forded. The idea was that workers who lost theirjobs because of trade were likely to go throughlonger than average spells of unemployment,and needed time to train in new skills. Incomesupport was in the form of Trade ReadjustmentAllowances (TRAs) which, combined with UI,could pay up to 75 percent of the worker’sformer wage and could last for a full year, or65 weeks for workers at least 60 years old. TheTRA alone, after unemployment insurance ranout, could pay as much as 65 percent of theworker’s former wage or 65 percent of the aver-age manufacturing wage, whichever was lower;UI paid less than that in many States, and wasgenerally limited to 26 weeks.

The law emphasized training. Congressionaldebate on the bill also showed that its backersexpected training to be a prominent feature ofTAA; the floor manager in the House of Rep-resentatives said that most workers gettingTRAs would:

. . . [receive] an intensive training programwhich will be aimed at getting these workerstrained in skills which will enable them, in asshort a time as possible, to take their rightfulplace in the economy.5

Any eligible trade-affected worker could gettraining free, if referred by the Department ofLabor. Moreover, workers could collect an ad-ditional 26 weeks of TRA (a total of 78 weeks)while in training. The law directed the LaborDepartment to disqualify workers for TRAs ifthey refused suitable training when referred toit, or failed to make satisfactory progress.

‘Rep. Eugene Keogh (D-NY) was House floor manager. See Con-gressional Record, June 27, 1962, p. 1145.

The law also included a relocation benefit.For workers who could find a suitable job onlyoutside their commuting area, TAA offeredreimbursement of “reasonable and necessaryexpenses” (to be prescribed by regulation) ofmoving a worker and his family and household,and a lump sum payment, equal to two and one-half times the average weekly manufacturingwage, for other related expenses.

The benefits under the 1962 law remainedmostly theoretical. To become eligible, a groupof three workers, or their representative, or thecompany, had to petition the Tariff Commis-sion, which then determined whether “as a re-sult in major part of concessions granted un-der trade agreements” increased imports werecausing or threatening to cause unemploymentor underemployment of a significant numberor proportion of workers in a firm or subdivi-sion. Until 1969, not one petition was approved.Over the next 5 years, about 46,000 workers re-ceived TRAs; no complete record was kept ofthose receiving training, but they were few,according to the Department of Labor.

Years of Expansion: 1975-81

In the Trade Act of 1974, Congress revisedthe framework for trade negotiations, to guidethe forthcoming Tokyo Round of GATT tradetalks, and at the same time restructured TAA.The biggest change in TAA for workers wasto ease the eligibility requirements. The newlaw no longer required proof that trade con-cessions caused injury to firms or workers, oreven that imports were a major cause, but onlythat increased imports “contributed impor-tantly” to the injury. It created two criteria forinjury: 1) an absolute decline in sales, produc-tion, or both, in a firm or subdivision; and2) actual or threatened total or partial layoffsof a significant number or proportion of theworkers,

Another major change was to raise benefits.TRAs were now set at 70 percent of the work-er’s previous wage and capped at 100 percentof the national average manufacturing wage;combined TRA and UI benefits could be asmuch as 80 percent of the previous wage. The

23

period of eligibility for TRAs was still 52 weeks,except for people in training or workers 60 andover, who qualified for an extra 26 weeks. Rec-ognizing that very little practical adjustmentassistance had reached trade-affected workersunder the 1962 law, Congress established a newtrust fund drawing from tariffs to pay for theprogram. Also, the law added a new benefitwhich would repay workers 80 percent of thecosts of searching for jobs outside their homeareas (up to a maximum of $500). Finally, cer-tification of workers for TAA was moved fromthe Tariff Commission to the Department ofLabor.

Over the next 7 years, many more workersreceived TAA benefits, and far more moneywas spent, than in the first dozen years of theprogram (figures 1 and 2). At least some work-ers displaced by trade did receive compensa-tion. But very few received any kind of adjust-ment assistance, and compensation was usuallyso late—typically beginning 14 to 16 months

after layoff—that most workers were back atwork, either at the old job or a new one, by thetime they got their first payment, Accordingto surveys of TAA during this period, two-thirdsof the workers receiving TRAs were eventu-ally recalled to their old jobs and thus were notreally displaced—for the time being at any rate.6

In fiscal years 1975 to 1981, over 1.3 millionworkers were certified eligible for TAA bene-fits. Fully half of these workers were certifiedin one fiscal year (1980) when auto workers re-sponded to rapidly rising imports and wide-spread layoffs with unprecedented applicationsfor TAA benefits. Spending for the program,

‘Two of the most comprehensive reviews were U.S. Congress,General Accounting Office, Restricting Trade Act Benefits toImport-Affected Workers Who Cannot Find a Job Can Save h4il-)ions (Washington, DC: 1980); and Walter Corson, Walter Nichol-son, David Richardson, and Andrea Vayda, Final Report: Sur-vey of Trade Adjustment Assistance Recipients, report to theBureau of International Labor Affairs, U.S. Department of La-bor (Princeton, NJ: Mathematical Policy Research, Inc., 1979).

1969 1971 1973 1975 1977 1979 1981 1983 1985 1987’Year

aEstlmated.

SOURCE U S Department of Labor, Bureau of International Labor Affairs and Otflce of Trade Adjustment Assistance,

24

Figure 2.–Outlays for TAA Benefits for Workers, 1970-87

1,700

1.600

1,500

1,400

1,300

1,200

1,100

c900

800

500

400

300

200

100

01969 1971 1973 1975 1977 1979 1981 1983 1985 1987 a

Year❑ Trade readjustment allowances Training, jobsearch, and relocation assistance

aEstimated.

SOURCE: U.S. Department of Labor, Off Ice of Trade Adjustment Assistance; and U.S. Congress, House Committee on Ways and Means, Background Mater/a/and Dataon Programs WIttrm the Jur/sd/ct/on of the Cornm/ffee on Wavs arrd Mearm, 1987 Ed/tion, 10Oth Corw., 1st sess., Committee Print WMCP, 100-4. Mar 6, 1987,pp. 318, 320.

which was about $150 million in fiscal years1976 and 1977, and about $260 million in thenext 2 years, soared to $1.6 billion in 1980 and$1.4 billion in 1981.

Nearly all of this money went for TRAs. Some48,000 workers (4 percent of those certified) en-tered training. About 5,200 got out-of-area jobsearch assistance and 4,400 relocation assis-tance; each of these services went to fewer thanone-half of one percent of the certified work-ers. Of the $3.9 billion spent for the programin 7 years, only $43 million went for training,relocation, and out-of-area job search combined(table 1).

The TRAs, though no doubt welcome at anytime, did not serve the purpose of income sup-port during the time the workers were unem-ployed, since 50 to 70 percent were back at work

by the time they got their first payment.’ Sev-eral factors accounted for the delays. First,workers were slow to file petitions. Many didnot know until months after their layoff thatthe program existed; and when they did dis-cover TAA, did not know how to apply. TheU.S. Department of Labor did not try to ac-quaint workers directly with the program, buturged the State employment security agencies,which administer TAA through the local ESand UI offices, to do so. The outreach systemdid not work well. Most workers who heardabout TAA discovered it through their union,

The Mathematical study found that the average delay in re-ceiving the first TRA payment was 14 months, and 50 percentof the recipients were reemployed. The General Accounting Of-fice (GAO) found an average delay of 16 months and 71 percentreemployed. See Corson, et al., op. cit.; and U.S. Congress, Gen-eral Accounting Office, op. cit.

25

Table 1 .–Workers Certified for TAA, Trade Readjustment Assistance, and Adjustment Services, 1975-87

OutlaysWorkers for TRAs Number of workers Outlays (millions of dollars)a

Fiscal Workersyear certified

1975 (4th qu.) . . . . 34,8791976 . . . . . . . . . . . 144,3961977 ., . . . . . . . . 116,7261978 . . . . . . . 165,8661979 ., . . . . . 140,0791980 ., . . . . . . . . 684,7661981 . . . . . . . . 51,0721982 . . . . . . . . . 19,4651983 . . . . . . . . . 56,1731984 . . . . . . . . . . . 19,6881985 . . . . . . . . . . . 25,3391986 . . . . . . . . 93,1321987 . . . . 110,000-140,000f

receivingTRAs

47,00062,000

110,705155,005132,188531,895281,426

30,46330,03215,82120,30042,OOOe

55,000e

(millions ofdollars)

7179

148257256

1,6221,440

103373540

119e

176e

Enteredtraining

463823

4,2138,3374,4569,475’

20,366C

5,84411,2996,8217,4247,743e

n.a.

Jobsearch

15823

2771,0721,181

9311,491

697696799916

1,384e

n.a.

Relocation

4426

191631855629

2,011662

3,2692,2201,6921,089e

n,a.

Jobtraining

$2-73.8

12.012.05.21.9

18.433.016.530.228.629.9

JobSearch

0.20.30.10,3

d

d

0.2b

b

b

Relocation

$ b

0.20.61.20.72.01.03.02,3

b

b

b

aFor 19&5 and Ig87, “outlays’ are apprOprlatlOnSblncluded In total for tralnln9cof ~orker~entering tralnln~ ,n 1980, 5,840 (59pe~cent) paid forthelr own tralnlng costs, In 1981 18,940(94 percent) paid forthelr own tralnlng Tratnees were ellglble

forTRA living allowancesdlncluded In total for relocationelj s Department of Labor estimate

‘OTA estimateNOTES Trade Readjustment Allowances (TRAs) provide Income support during unemployment or tralnlng Job search expenditures are for job searches outside the

workers’ commuting area

SOURCES U S Congress, House Committee on Ways and Means, Background Maferfal and Data on Progarns WIthIn the Jurwdlct(on of the Cornrnf(tee on Ways andMeans, 1987 Ed/t/on IOOth Cong , 1st sess Comm!ttee Print WMCP 100.4, Mar 6.1987, PP 318, 320, U S Department of Labor. Off Ice of Trade AdjustmentAss{stance

co-workers, or the company, belatedly as a rule.Workers and unions typically lost 7 months ingetting petitions filed, and another 2 or 3months after the workers were certified, oftenbecause State agencies failed to notify them thatthey were now eligible for benefits.

The other main factors in the delay were thatthe Labor Department generally took muchlonger than the 60 days allowed under the lawto process petitions for certification. As morepetitions were filed, backlogs grew and delaysof 5 or 6 months before certification were com-mon. State agencies added more delays inchecking out individual workers’ eligibility andbenefits. Thus, by the time the average claim-ant got his first check, 14 to 16 months had goneby.

These delays were part of the reason for thefailure to deliver adjustment services. Themajority of workers had taken a job in the yearor more that it took for government help toreach them; at this point there was little to bedone for them, other than giving them a lumpsum retroactive payment. Also contributing tothe failure was the fact that workers did not

know that training or other adjustment serv-ices were available. One study found that onlyone-third knew about the possibility of train-ing; one-fifth had heard of job counseling, test-ing, and job referral services; and one-eighthknew about the out-of-area job search allowanceand reimbursement of moving expenses. a

Generally, the ES offices did not push theseservices. A principal reason was that the Statesnever got any extra training or relocation fundsfor TAA-certified workers. Despite the provi-sion in the Trade Act for a TAA trust fund, theOffice of Management and Budget refused toset it up, arguing that employment and train-ing services were available under the Compre-hensive Employment and Training Act (C ETA).Yet CETA was designed primarily for disadvan-taged workers; the Department of Labor setaside only very limited CETA training fundsfor the TAA clients. Moreover, applying toCETA for training was both a bureaucratic andpsychological hurdle for TAA-eligible workers.In fact, in the 2 years 1980-81, over 80 percent

8Corso n, ct al., op. cit., p. 127.

72-674 0 - 87 – 2

26

of TAA-certified workers in training paid theirown tuition and fees; TAA did give them in-come support, however, in the form of TRAs.

Another likely reason for the neglect of ad-justment services was that the EmploymentService, which was supposed to provide them,had other clients to serve and other legally setpriorities—in particular, to serve disadvantagedjobseekers. According to GAO, many officialsand staff of the Labor Department’s regionaloffices, State agencies, and local ES offices sawno reason why displaced trade-affected work-ers should go to the head of the queue for suchservices as testing, counseling, and referral totraining. 9 Considering the scant attention givento training and the lack of funds for it, it is notsurprising that the Department of Labor neverenforced the provision under which TRAscould be withdrawn if a TAA client refusedtraining that was recommended for him,

Even if training and relocation services hadbeen offered much more effectively, it is by nomeans certain that many workers would havemade use of them, At that time, few adult work-ers with a steady work history had experiencedlong-term displacement. Most had been throughlayoffs and recalls before, and probably ex-pected to be recalled again, eventually. The oldjob usually offered better pay and benefits thanany new job available through training, so thatholding out for a recall seemed to many at thetime a better choice than retraining. And theywere right—at least for a brief time. Only later,in the 1980s, did widespread displacement andpermanent loss of the old job become a realityfor millions of adult workers.

While the TAA program expanded in the halfdozen years after 1975, the mix of industriesaffected by trade changed considerably. In theearlier years, 1975-79, most of the certifiedworkers were from the leather, shoe, textile,and apparel industries (see table 2). In 1980,auto workers accounted for most of the enor-mous rise in certifications. The soaring num-ber of TAA-certified workers and the great rise

‘U.S. Congress, General Accounting Office, op. cit., pp. 15-16.

in spending pushed the program into notori-ety. The studies showing that the majority ofTAA clients had gone back to their old jobs,that most were back at work when they col-lected TRAs, and that training and relocationservices were scarcely used, made TAA a primetarget for cost cutting as the Reagan Adminis-tration took office in 1981.

Cutback and Regrowth: 1981-87

In the Omnibus Budget Reconciliation Actof 1981 (OBRA) Congress reconstructed theTAA program for workers to cut its costs, pullaway from income compensation for temporarylayoffs, and once more emphasize training andother adjustment measures for the permanentlydisplaced. The major change was to cut backTRA benefits. The TRA was reduced to thesame level as the worker’s UI payment (differ-ing under various State laws), and paymentcould begin only after the worker’s UI was ex-hausted. The overall limit for UI plus TRAs re-mained at 52 weeks, with 26 additional weeksfor workers in approved training, The extra 26weeks for older workers was abandoned.

OBRA extended the program for 1 year only.Later legislation extended it for another 2 years,and then for briefer periods through Decem-ber 19, 1985, at which time authority temporar-ily lapsed, to be restored in April 1986.

No changes were made in the criteria forTAA eligibility,10 but the number of workerscertified dropped steeply after 1981, and so didspending. In fiscal year 1982, expenditures forTAA for workers were $121 million, less thanone-tenth the levels of the 2 previous years, andfor the next 3 years dropped still lower, to about$54 to $73 million, The number of workers ap-plying for benefits declined from the 1980 peak,possibly because of a widespread misapprehen-sion that the program was abolished. More im-portant, the percentage of workers approvedfor certification by the Labor Department de-

10OBRA did tighten the criterion for eligibility y slightly, but thechange never took effect. The change was to require that im-ports be a “substantial” rather than an “important” cause of de-clines in employment and sales or production. The change wasrescinded before it was scheduled to take effect.

- I

I

28

clined sharply. Approvals, which had held atabout 65 percent through 1970s and rose above80 percent in 1980, dropped to 15 and 12 per-cent (table 3).

The decline in certifications was in line withthe new Administration’s efforts to cut spend-ing; according to GAO, borderline petitions thatwould previously have been approved werenow rejected.11 Also, all petitions for 50 or moreworkers began to receive special scrutiny; fora period all were personally reviewed by theAssistant Secretary of Labor with responsibil-ity for the program. Certifications of auto work-ers dropped steeply. Over 90 percent of autoworkers petitioning for certification got ap-provals in 1980, 22 percent in 1981.12 In 1982,petitions covering just 65 auto workers wereapproved; this compares with about 592,000 in1980 and 19,000 in 1981 (figure 3; table 2 showsdetails).

Another change in the TAA program forworkers was in the patterns of activity andspending. In relative terms, training took ongreater importance. Some 214,000 workerswere approved for TAA benefits in the 5 years1982-86. In the same period, a total of 139,000received TRAs and 39,000 entered training.About 9,000 received relocation assistance and4,500 got help with out-of-area job search. (Thenumbers of workers receiving training, out-of-area job search, arid relocation assistance arenot additive; some workers may have received

11 U.S. Congress, General Accounting Office, ~nformation onthe 1974 Trade Act Worker Adjustment Assistance Program Cer-tification Process (Washington, DC: 1982].

IZThe Labor De~artment stated that many petitions in 1981were from auto dealers, which were ineligible because they wereservice firms, and from auto parts makers, which were ineligi-ble because the parts they made were not being imported. How-ever, only about 700 workers in auto dealerships petitioned in1981; all were denied. Petitions from final auto assembly plantswere denied in the same proportion [78 percent) as from autoparts plants. In 1981, the Labor Department approved TAA pe-titions covering 11,929 workers from firms making motor vehi-cle parts and accessories (SIC 3714) and rejected petitions cov-ering 41,563 workers. The same year, petitions covering 6,927workers from plants making motor vehicles and car bodies (SIC371 1) were approved, and petitions covering 24,384 such work-ers were rejected, In 1982, 64 workers from motor vehicle partsand accessories were certified and 4,680 rejected; 1 worker frommotor vehicles and car bodies was certified and 4,245 were re-jected.

Table 3.—Workers Certified for TAA as a Percentageof Workers Applying

Workers applying Workers PercentFiscal year for certification certified certified

1970-75 a . . . 121,330 53,899 44 ”/01975 b . . . . . . 73,036 34,879 481976 . . . . . . . 219,641 144,396 661977 . . . . . . . 183,218 116,726 641978 . . . . . . . 255,452 165,866 651979 . . . . . . . 214,856 140,079 651980 . . . . . . . 840,794 684,766 811981 . . . . . . . 354,863 51,072 141982, . . . . . . 157,549 19,465 121983 . . . . . . . 266,954 56,173 211984 . . . . . . . 88,133 19,688 221985 . . . . . . . 72,001 25,339 351986 . . . . . . . 168,005 93,132 551987C . . . . . . 190,000-255,000 110,000-140,000 55-58aThrough March 1975bFrom Apil 1975 to September 1975COTA estimate, based on first and second quarters, fiscal year 1987

SOURCE” U S. Department of Labor, Off Ice of Trade Adjustment Assistance

two or three of the services.) Although the num-bers of TAA-certified workers receiving train-ing were no greater than in earlier years (seetable 1), the proportion of those certified whoentered training was much larger (18 percent,versus under 4 percent), During the deep reces-sion of 1982-83, more workers than ever beforetook advantage of relocation assistance,

The increased emphasis on training reflectedeasier access to training funds. In 1982, for thefirst time, Congress earmarked funds specifi-cally for training and relocation services. Theappropriation for several years was about $26million, with $3,9 million for administrative ex-penses added in 1985. Cuts required under theGramm-Rudman-Hollings deficit reduction lawlowered the combined funds to $28,5 millionin 1986; the $29.9 million appropriation wasrestored in 1987.

In its most recent years, 1985 through early1987, the TAA program for workers surviveduncertainty, the lapse in legal authority, andproposals by the Reagan Administration toabolish it. Under a new Secretary of Labor,TAA for workers began once more to expand,In 1986 and 1987, petitions for eligibility andrequests for training rose fast, At the same time,the percentage of workers approved for certifi-cation increased to about 55 percent—not farbelow the 65 percent that was typical in the

29

Figure 3.— Workers Certified for Trade Adjustment Assistance, by Selected Industries, 1975-86

20

10

01975 76 77 78 79 80 81 82 83 84 85 86

Year

Apparel and textile productsSIC 23

‘ 0

40

30

20

Year

Blast furnaces and basic steel productsSlC 331

20

15

10

5

0

r

1975 76 77 78 79 80 81 82 83 84 85 86Year

Non-rubber footwareSlC 314

10

01975 76 77 78 79 80 81 82 83 84 85 86

v1975 76 77 78a 79 80 81 82a 83 84 85a 86 a

Year

Motor vehicles and equipmentSlC 371

aNumber of workers certified was less than 500

500

400

300

200

100

SOURCE U S Department of Labor, Off Ice of Trade Adjustment Assistance

1970s. In fiscal year 1986, over 93,000 workerswere certified, and $119 million was spent forTRAs, compared to $35 to $40 million per yearin the 3 previous years. In the first half of fis-cal year 1987 (October 1986 to March 1987),more than 69,000 workers were certified (anannual rate of up to 140,000) and the Depart-ment of Labor estimated that $176 millionwould be spent for TRAs by the end of the fis-cal year.13 Demands for training in early 1987

13TRAs are not funded by a line item appropriation, but aredrawn from the Federal “Unemployment Benefits Account

(footnote continued)

(F UBA), which is mostly spent for TRAs. General revenues sup-port the FUBA account; if it is exhausted before the end of theyear, funds can be advanced from the Advances Account of theUnemployment Trust Fund and Other Funds Accounts. FUBAis currently in good financial shape because it can tap fundsthat were intended for the Black Lung Trust Fund, but becauseof a change in the law are not needed. Without this windfall,it is not likely that FUBA would have had enough money to payfor TRAs in fiscal year 1987, unless Congress provided it in asupplemental appropriation.

The Labor Department’s estimate of $176 million for TRAsin fiscal year 1987 appears very conservative. It is based on anestimate of 55, 000 workers receiving TRAs for an average of 22weeks, with the average payment $147 per week. Since 93, 000workers were certified for TAA benefits in fiscal year 1986, and

(footnote continued)

30

were great enough that Labor Department offi-cials expected funds to run out before the endof the fiscal year, and were rejecting or paringdown requests from the States for trainingfunds.

The future of the TAA program for workerswas placed in doubt in February 1985, whenthe Administration proposed in its 1986 bud-get to abolish TAA and rescind what was leftof the $26 million FY 1985 appropriation. Thereason given was that TAA was unnecessary,since the Title III program under the Job Train-ing Partnership Act could be used to serve alldisplaced workers. The programs are not iden-tical, however. TAA offers more generous sup-port for training, out-of-area job search, andrelocation assistance, and provides extendedincome support during training, TAA also hadcontinuing political support, on the groundsthat workers injured by a trade policy meantto benefit the entire Nation deserve specialassistance or compensation. Congress did notact on the rescission proposal, and it expiredin April 1985.

In December 1985 the program lost its legalauthority. Congress failed to pass budget recon-ciliation legislation that would have reauthor-ized the program, opened it to more workers,and provided a new source of funding througha small tariff on all imports. Although Congressadjourned without passing the bill, the floor de-bate indicated strong congressional interest inkeeping the program alive; also, a continuingresolution provided funds to keep it going. Dur-ing the lapse of legal authority, the Departmentof Labor continued to certify workers and toprovide training and relocation services (al-though not TRAs).

Authorization for TAA was restored in April1986 in the Consolidated Omnibus Budget andReconciliation Act of 1985 (COBRA), which ex-tended the program through the end of 1991.This was the longest extension since TAA wasoverhauled at the outset of the first Reagan

(footnote continued from previous page)69,000 were certified in the first half of fiscal year 1987, the esti-mate of 55,000 seems low, Labor Department spokesmen toldOTA the estimate might be revised.

Administration; for the first time in 6 years, theprogram appeared to have a stable future.

The act also made substantial but not radi-cal changes in the TAA program for workers,It extended the period of eligibility for bene-fits, because rules related to date of layoff hadpreviously kept some workers from getting theirfull share. It renewed emphasis on training, re-quiring that State agencies must advise everyworker who applied for TRAs to apply for train-ing, must let the worker know of suitable train-ing opportunities within 60 days, and must ap-prove training, so long as five criteria were met:no suitable job is available, training is available,the worker will benefit from training, can ex-pect to complete it, and can reasonably expectto get a job afterwards. Workers were not ob-ligated to enter training, however, as a condi-tion for getting TRAs. They were obligated totake part in a job search skills workshop or jobfinding club, unless no acceptable job searchprogram was reasonably available,

With the renewal and apparent stability ofthe TAA program came a rising tide of appli-cations for benefits. For fiscal year 1987, TAAfor workers was expected to cost about $206million—nearly as much as the $223 million ap-propriation for the JTPA Title III program,which is open to all displaced workers, regard-less of cause. The projection of 110,000 to140,000 workers certified for TAA in fiscal year1987 compares to about 146,000 displacedworkers newly enrolled in Title III programsin the most recent reporting period, July 1985to June 1986.

Trade Adjustment Assistance for Firms

TAA for firms was created at the same timeas the program for workers, in the Trade Ex-tension Act of 1962, It has gone through sub-stantial changes in character since it was cre-ated 25 years ago. Like TAA for workers, it wasdormant in its first dozen years. As it expandedin the 1970s, it was primarily a financial aidprogram, offering loans and loan guaranteesto firms that were in trouble because of importcompetition. Technical assistance was at firsta small component but soon came to be con-

31

sidered more valuable than financial assistance.A feature added in the later 1970s was indus-trywide assistance; a few industries began toget technical and export assistance, usuallythrough industry associations. In the 1980s, theReagan Administration initially backed tech-nical assistance for firms but soon shifted andmade the program a target for abolition. In fis-cal year 1987, TAA for firms was barely keptalive; the Commerce Department granted onlybrief, uncertain extensions of authority andfunds to service providers.

Over the years, TAA for firms has had lessvisibility and political support than the TAAprogram for workers; and even at its height,cost a good deal less. It is now a small programfor technical assistance only, funded at $15.8million in fiscal year 1987; loans and loanguarantees were dropped in the last law Con-gress passed reauthorizing the program. De-spite its modest scale and its bare survival atpresent, TAA for firms is, with a few specialor minor exceptions, the only Federal programthat provides sustained, in-depth technical helpto small and medium-sized manufacturing com-panies. Thus its experience may shed some lighton the potential and problems of a government-sponsored industrial extension service forfirms.

The TAA program for firms is administeredby the Office of Trade Adjustment Assistance,in the Commerce Department’s InternationalTrade Administration (until 1981, the Eco-nomic Development Administration was re-sponsible for the program). The Commerce De-partment does not directly provide technicalassistance to firms, but gives grants to 12 inde-pendent nonprofit agencies, Trade AdjustmentAssistance Centers (TAACs), which provide thetechnical services. The Department decides onpetitions for certification, and keeps a tight reinon the TAACs, retaining the power to approveassistance plans and contracts for consultants.

The Early Years: 1962-74

Under the 1962 law, eligibility for the TAAfirm program was just as restrictive as for theworker program. In order for a firm to qualify,

the Tariff Commission would have to find thatthe firm was suffering “serious injury” fromimports as a result “in major part” of trade con-cessions. In determining serious injury, theCommission was to take into account all eco-nomic factors it considered relevant, includ-ing idling of productive facilities, inability tomake a reasonable profit, and unemploymentor underemployment in the firm.

A firm that got certification could apply fortechnical, tax, or financial assistance. Once cer-tified, the firm could carry back or carry for-ward current operating losses for 5 years, andapply for any tax refund or credit that mightresult. The firm could also receive technicalassistance from a public agency or private pro-vider, sharing in the cost as determined to beappropriate by the Commerce Department. Thefirm could get loans or loan guarantees underthe program only if the financial assistancewere not available privately or from some otherexisting government program. The loans wereto be used primarily for plant or equipment,but in exceptional cases could be made forworking capital,

Through 1969, the Tariff Commission ap-proved no petitions for adjustment assistance.No firms were certified, and none received anyhelp. After the eligibility rules were revised in1969, 39 firms were certified; 16 were approvedfor loans and loan guarantees, which amountedto $32.5 million, of which $14 million went totwo plants. This was the extent of firm assis-tance in the first dozen years of TAA.

Years of Expansion: 1975-81

The Trade Act of 1974 relaxed eligibility rulesfor firms on the same terms as for workers. Italso dropped tax assistance, limited loans to$1 million and loan guarantees to 90 percentof $3 million, and required that firms pay atleast 25 percent of the costs of technical as-sistance.

With the relaxation of eligibility rules andtransfer of the program from the Tariff Com-mission to the Department of Commerce, it wasexpected that more firms would apply for assis-tance under TAA. They did, but not to the ex-

32

tent expected. The Trade Subcommittee of theHouse Ways and Means Committee reportedin 1977 that in the first 2 years under the TradeAct 73 firms were certified, and 18 applicationsfor financial assistance were approved, for atotal of $19.1 million in loans and loan guaran-tees.14 A year later, the General Accounting Of-fice also concluded that the program was littleused—and that the few firms getting TAA ben-efits (mostly loans) had not used them to be-come viable. 15

TAA was criticized for the amount of paper-work involved in applying for the program, andresulting delays; firms complained of high in-terest rates for loans and requirements forpersonal repayment guarantees. 16 The TradeSubcommittee of the House Ways and MeansCommittee said that TAA represents a “clas-sic Catch 22 situation.” Firms could not get helpuntil their sales and/or production and employ-ment were already declining. To get loans,firms had to show they were unable to getfinancing in the commercial market–but atthe same time had to provide assurances ofrepayment.

The Commerce Department introduced TAAassistance for an entire industry in 1977, usingexisting authority of the Economic Develop-ment Administration. American makers of foot-wear were suffering from foreign competition,imports having risen from one-fifth to one-halfof consumption since 1968 while employmentdeclined 29 percent. The International TradeCommission recommended a quota, but Presi-dent Carter rejected the proposal. Instead, heproposed an Orderly Marketing Agreement, un-der which Korea and Taiwan agreed to limitimports for 4 years, and the concerted use ofseveral government programs, including TAA,

IW. s, Congress, I-IOUse of Representatives, Subcommittee onTrade of the Committee on Ways and Means, Background A4a-terials on the Trade Adjustment Assistance Programs Under Ti-tle ZZ of the Trade Act of 1974 (Washington, DC: U.S. Govern-ment Printing Office, 1977).

lq-J. s. Congress, Genera] Accounting Office, Adjustment Assis-tance to Firms Under the Trade Act of lg74—Income Mainte-nance or Successful Adjustment? (Washington, DC: U.S. Gov-ernment Printing office, 1978).

161 bid,, and U.S. Government, House of Representatives, op. cit.

to help both individual footwear firms and theindustry as a whole.

TAA industrywide assistance for the foot-wear industry included technological studies(by the government, universities, and privateindustry) and export promotion, in cooperationwith the industry association. Individual firmswere targeted for TAA help; in 1977-78, 60 per-cent of firms certified were in the footwear in-dustry, compared with 20 percent previously.”At the time there were 376 non-rubber footwearcompanies in the United States; 56 were certi-fied by the end of January 1978. Informationis incomplete on how much assistance thesefirms actually received; according to GAO, ap-proval of loans was slow, and technical assis-tance was not yet a major part of the TAA pro-gram for firms.18 The effort to revitalize theAmerican shoe industry did not stop the indus-try’s decline, though the losses may have beenmoderated; by 1984 imports were 70 percentof U.S. consumption, and employment in theU.S. industry was about 95,000, down from233,400 in 1968.

Other industries besides footwear also begangetting technical assistance in 1978 (table 4).The biggest recipient was the textile and ap-parel industry, which got nearly $20 million fortechnological assistance and export develop-ment through fiscal year 1986. TAA funds con-tributed to the cooperative public-privateproject of the Textile & Clothing TechnologyCorp. (TC2), to develop automated methods ofsewing. Other projects included helping theAmerican electronics industry and an autoparts industry association set up offices inTokyo, to serve as marketing, public informa-tion, and public policy centers.

In 1978 the Commerce Department also estab-lished a new way of offering TAA assistanceto firms, Instead of providing it through con-sultants on contract, the Department set up pri-vate non-profit Trade Adjustment AssistanceCenters (TAACs) in several regions of the Na-tion, to deal with firms applying for TAA help,

ITU,S. Congress, General Accounting Office (1978), OP. cit.

*81 bid,, pp. 42-43.

33

Table 4.—Trade Adjustment to Firms and Industries, Fiscal Years 1978-86—Technical Assistance(thousands of dollars)

Assistance to firms Industrywide assistance

Direct Multi- TechnicalTAAC a TAAC firm Apparel/ industry assistance

agreements support assistance Total Footwear texti les Other pro jec ts Tota l Total

1978 . $ 7,359 $ 94 $3,100 $10,553 $2,437 $1,975 $2,675 $361 9 7 9 8,159 101 2,920 11,180 1,597 1,724 2,417 8291980 . 9,736 180 600 10,516 2,719 3,029 1,037 561981 . 12,663 200 — 12,863 670 3,160 771 —1982 . 8,695 — — 8,695 244 2,718 382 1241983 ., 12,990 — — 12,990 33 2,854 1,335 2851984 . . 12,951 — — 12,951 — 1,735 800 3941985 . . 13,947 — — 13,947 — 2,000 592 1001986 . 5,078 – — 5,078 — — 1,164 —‘TAAcS are Tr’ije Adjustment Assistance centersbEDAS rjlrect funding to firms w’s phased out when the TAACS were createdNOTE TAA flnanclal assistance (loans and loan guarantees) IS not shown on this table See table 5 for data on flnanclal assistance

SOURCE Off Ice of Trade Adjustment Assistance, International Trade Admlnistratlon, U S. Department of Commerce

$7,1236,5676,8414,6013,4684,4802,9292,6921,164

$17,67617,74717,35717,45412,16317,47015,88016,6396,242

Operating on grants from the Commerce De-partment, the TAACs would take firms throughthe first stage of preparing petitions for certifi-cation, help them apply for loans and loanguarantees, and offer technical assistance tohelp firms improve their operations and gaina better chance of survival. Drawing technicalcompetence both from their own staffs andfrom consultants, the TAACs were able toadvise firms on problems ranging across newproduct development, improved manufactur-ing methods and work organization, financialcontrols, management information systems,and marketing. With the establishment of theTAACs, the program began to lean morestrongly to technical assistance, though loansand loan guarantees remained a big part of ituntil a change of direction under the ReaganAdministration.

Bare Survival: 1981-87

The TAA program for firms initially foundsome support in the new Administration, as auseful alternative to protectionist measures, Inline with this idea, TAA was moved from theEconomic Development Administration to theInternational Trade Administration (both in theDepartment of Commerce). Financial assis-tance was deemphasized, Loans and loan guar-antees were cut back from over $40 million peryear to about $20 million; firms getting finan-cial assistance dropped from about 40 per year

to a dozen (table 5). The technical assistanceprogram was pared for one year, but less drasti-cally, and was then restored to its previousmodest level of $16 million to $17 million peryear. In the Omnibus Budget Reconciliation Actof 1981, Congress explicitly authorized theindustrywide technical assistance program(previously carried out under EDA authority).Otherwise, there were few changes in the lawaffecting the TAA program for firms; this wasin contrast to the TAA program for workers,which Congress revamped in several majorways to reduce spending.

By the next year, the situation changed, In1982 and every year thereafter, the Adminis-tration proposed to eliminate TAA for firms.The arguments were, first, that the program didnot work. This argument focused mainly on theloan and loan guarantee program, Because somany firms went bankrupt shortly after gettingfinancial assistance, the Administration said,the program suffered from a high default rate;about half the TAA portfolio was in liquida-tion or written off at the end of 1983, andanother 11 percent was delinquent in meetingpayments. Also, the Administration argued, thefact that a firm is harmed by import competi-tion does not justify special government assis-tance; this is not fair to firms that suffer fromrecessions or domestic competition, Besides,firms that are harmed by unfair import com-

34

Table 5.— Firms and Industries Receiving TAA Technical and Financial Assistance,Before Fiscal Year 1982 and Fiscal Years 1982-86

Before CumulativeFY 1982 FY 1982 FY 1983 FY 1984 FY 1985 FY 1986 to date

Firms certified . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,265 195 413 398 319 178a 2,768Petition acceptance to certification (average

number of days) . . . . . . . . . . . . . . . . . . . . . . . . . . 52 54 57 74 48 88a 57Adjustment plans accepted . . . . . . . . . . . . . . . . . . (not 114 106 191 158 56 —

available)Total firms receiving DOC Direct Technical

Assistance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 176 0 0 0 0 0 176Total firms assisted by TAACsb . . . . . . . . . . . . . . 1,665 523 734 814 749 442 4,927

Pre-certification . . . . . . . . . . . . . . . . . . . . . . . . . . 1,153 248 513 502 413 206 3,035Post-certification . . . . . . . . . . . . . . . . . . . . . . . . . 434 213 157 252 233 99 1,388Implementation . . . . . . . . . . . . . . . . . . . . . . . . . . 78 62 64

$70,816 $12,163 $17,470 $15,8% $16,639

137 504Total technical assistance ($000) . . . . . . . . . . . . $6,243 $139,428

Firms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,951 13,947 5,078 99,320Industrywide . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,157 3,468 4,480 2,929 2,692 1,164 40,108

Firms receiving financial assistance . . . . . . . . . . 295 12 16 13 340Total loans ($000) . . . . . . . . . . . . . . . . . . . . . . . . . . . $321,778 $19,289 $15,784 $23,900 $3,400 $ 900 $385,051

Direct loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 187,781 2,527 7,500 400 900 206,957Guaranteed loans . . . . . . . . . . . . . . . . . . . . . . . . . 133,997 16,762 7,935 16,400 3,000 0 178,094

aB~t~~~n Dec 19, lg~, andAPr, 7, 1988, lhe~e~a~ala~se,rl thea~th~~l~ation for the trade adjustment assistanceprograrn for firms during which petition processing

was suspendedbDouble counting is unavoidable, sin~emostfirm~ re~eive more than Onernqorcategory of TAAC assistance, Only completed projects have been counted beginning

in fiscal year 1979, In.process projects are carried over to the next year, and inactive projects are not Included.cFinancial asslstanceto firms was discontinued on Apr, 7, 1988, upon enactment of the Consolidated Omnibus Budget Reconciliation Act of 1985.

SOURCE Office of Trade Adjustment Assistance, International Trade Administration, U S, Department of Commerce.

petition can appeal for protection under thetrade laws.19

In its fiscal year 1986 budget, submitted toCongress in February 1985, the Administrationasked for an immediate end to both TAA pro-grams, and a rescission of fiscal year 1985funds. Under the Congressional Budget and Im-poundment Control Act of 1974, Congress has45 working days to consider an Administrationrequest to rescind funds already appropriatedfor the current fiscal year; unless both Housesapprove the request within the 45 days, it fails.During the time the rescission request ran, theDepartment of Commerce approved no newgrants for TAA firm assistance; but that hadlittle practical effect, because most of theTAACs, which provide the technical assistance,continued to operate on yearlong grants thathad already been awarded. The loan programbecame virtually a dead letter, however. Al-

19The Administration arguments against the TAA program forfirms are cited in U.S. Department of Commerce, Office of In-spector General, International Trade Administration Trade Ad-justment Assistance: No Cure for Import-injured Firms, reportNo. D-068-5-006 (Washington, DC: Department of Commerce,1985), p. 2.

though money was available for financial assis-tance, only two firms got loans or guaranteesin fiscal years 1985 and 1986, after delays ofup to 2 years.

The TAACs and the firm assistance programhad no protection when authority for both TAAprograms lapsed in December 1985. The De-partment of Labor continued training and relo-cation assistance (but not Trade ReadjustmentAllowances) for TAA-certified workers, underfunding Congress had provided in a continu-ing resolution. The Department of Commerceordered all TAACs to stop services to theirclients and close down their offices entirely byMarch 31, 1986.

In the Consolidated Omnibus Budget Recon-ciliation Act of 1985 (COBRA), signed into lawon April 7, 1986, Congress revived both theworker and the firm TAA programs. The lawended financial assistance for firms; only tech-nical assistance remained. The Senate andHouse Appropriations Committees, in provid-ing $15.8 million for the firm program in fiscalyear 1987 ($13.9 million for grants, the rest foradministration) directed that the Departmentof Commerce continue to provide technical

35

assistance through the TAACs. The Departmentinterpreted this direction to mean that nomoney was available for industrywide pro-grams. 20

Despite the new legislative lease on life, TAAfor firms barely survived the next year. First,the Department of Commerce instructed allTAACs to resubmit their proposals for grants;in effect, they had to start over. Most of theTAACs received new grants by the followingAugust, but the grants were short-term, run-ning only through the end of December 1986,In January 1987, in submitting its fiscal year1988 budget, the Administration again pro-posed to end the TAA program for firms, andasked for rescission of fiscal 1987 funds. TheTAAC agreements were extended for 2 months,

XII n a supp]ementa] appropriate ions hill for fiscal year 1987,the House Appropriations Committee stated in its report: “TheC o m m i t t e e did not intend to prohibi t f iscal ~rear 1987funds . . from being used for industry project grants. The Com-m ittee expects ITA to make funds available for this acti~’ity outof the total amount appropriated for TAA for FY 1987, at ap-proximately the same level as was made a trainable for this activ-ity in FY 1985 and FY 1986’ ‘—that is, about $1 million per year,

through the end of February 1987; most of theextensions were on existing funds, with no newmoney. Then some small grants were doled out,with extensions through the end of March. Therescission request expired that month with noaction by Congress. The Department of Com-merce then gave the TAACs an extension toJune 15,1987, with limited grants from the fiscal1987 appropriations. Of $13.9 million availablefor TAAC grants for the year, $2,2 million hadbeen released by the end of April 1987. In May1987, the Commerce Department finally re-quested refunding proposals from the TAACs,for the period June 1987-May 1988. Meanwhile,in dealing with interruptions, short-term exten-sions, and lack of money over a period of 16months, most of the TAACs found they werevirtually unable to deliver assistance to theirclients, 21

ZI In March 1987, OTA interviewed directors of 11 of 12 ‘1’AA~s(all but one that had just been established): all reported seriousdisruptions of ser~’ice to clients during the pre~ious months ofinterrupted and uncertain funding, Other results of the inter-~’iews are reported in the section entitled, Trade Adjustment As-sistan t for Firms and Industries: lss[Jes,

TRADE ADJUSTMENT ASSISTANCE FOR WORKERS: ISSUES

The stated aim of Trade Adjustment Assis-tance for workers is to help people who losetheir jobs because of imports learn new skillsand find good new jobs. The main issue inevaluating TAA is whether it does this job well.

By its nature, TAA cannot include all the fea-tures that make a displaced worker programmost effective. In a 1986 study of worker dis-placement, Technology and Structural Unem-ployment: Reemploying Displaced Workers,OTA found several common ingredients of suc-cess in projects serving displaced workers,regardless of the details of their design, Thesecommon factors are:

1. help for workers is ready early, preferablybefore people are laid off;

2. services are offered all together, in a one-stop center, on the premises where the lay-offs take place or as nearby as possible;

3. employers and workers are directly in-volved in planning and delivering services;and

4. the projects offer a full range of services,including testing, assessment, and counsel-ing; training in job search skills and search-ing out job opportunities; and arrangingfor training in new skills or in basic educa-tional skills, when workers are lacking insuch skills.1

With TAA alone, it is scarcely possible to be-gin serving workers before layoff, since theymust first be certified as trade-affected; thistakes several weeks at the least and in the pasthas often taken several months. There is no pro-vision under TAA for employers and workersto cooperate in the delivery of services; the Un-employment Insurance (UI) and Employment

11 U .S. Congress, Office of Technology Assessment, Technol-ogy and Structural Unemployment: Reemploying DisplacedAdults, OTA-ITE-250 (Washington, DC: U.S. Government Print-ing Office, February 1986), ch. 6 and passim. For another reportthat emphasizes many of the same elements in successful dis-placed worker projects, see Economic Adjustment and WorkerDislocation in a Competitive Society, Report of the Secretaryof Labor’s Task Force on Economic Adjustment and Worker Dis-location (Washington, DC: U.S. Department of I.abor, Decem-ber 1986).

36

Service (ES) offices are charged with this task,As for offering a full range of services, it is theo-retically possible for the ES to do counseling,assessment, job development, and so on forTAA-certified workers; in practice, the ES hasnever done much in the way of providing theseservices to its clients, and with the staff andfunding cuts of recent years is now doing evenless. 2

To get the benefit of early response, one-stopservices in the plant or nearby, employer-work-er cooperation, and a full range of services, dis-placed workers must go elsewhere than TAA.Projects funded under Title 111 of the Job Train-ing Partnership Act can offer all these features;not many, so far, do. But it is at least possible.The States administer Title III; many of themare striving to create programs that include thedesirable features described above. TAA hasits own special advantages for workers—mainly, the possibility of generous support fortraining and extended income benefits for peo-ple out of work. Thus, States which are adeptat combining the best features of the two pro-grams can offer first-class service to TAA-cer-tified workers (assuming the funds for train-ing and relocation assistance hold out). A fewStates are doing this very well, and offering anexample to others,

An alternative to coordination would be torevise the law so as to roll TAA and Title IIIinto one comprehensive adjustment assistanceprogram open to all displaced workers. Mostof the issues related to eligibility and certifica-tion of trade-affected workers for TAA woulddisappear if the two programs became one. Sowould the management problems of coordinat-ing TAA and Title III. However, no proposalbefore Congress for a single program includesall the useful features of both programs, in par-ticular, the long-term income support nowavailable to TAA-certified workers in training.Also, the equity argument for TAA–that work-ers bearing the heaviest costs of the Nation’s

‘U.S. Congress, Office of Technology Assessment, Technol-ogy and Structural Unemployment, op. cit., p. 198.

37

free trade policy deserve special consideration–has strong bipartisan support.

Many of the other issues that concern admin-istrators of TAA and Title III programs comedown, essentially, to money. TAA-certifiedworkers in approved training courses are en-titled to an extra year of income support; work-ers in Title III projects are not. This is a moneyissue. Shoe workers are usually certified forTAA; workers who make rubber heels for thoseshoes are not. The eligibility rule that causesquirks like these is principally a money issue,In the detailed discussion that follows, it maybe helpful to keep in mind the larger, simplify-ing issues of how much the Nation is willingto pay for help to displaced workers, andwhether workers injured by our trade policiesneed special adjustment assistance,

The Equity Argument for TAA

The equity argument is the main rationale fora Program of benefits restricted t. trade-affected workers, Despite some difficulties andoutright failures in program administration,TAA as a separate program is popular with itsbeneficiaries. Labor unions representing largeclusters of trade-affected workers are strong ad-vocates of TAA. Many individual workers feelmore at home in the local Unemployment In-surance office, where Trade Readjustment Al-lowances are administered, or in the Employ-ment Service, which supervises TAA trainingand relocation benefits, than in an unfamiliarJTPA project center.

The equity argument can be turned upsidedown, however. In asking for an overhaul ofthe TAA program for workers in 1981, Presi-dent Reagan appealed to fairness as the rea-son for abolishing extra benefits under TAA.He said:

[W]e wind up paying greater benefits tothose who lose their jobs because of foreigncompetition than we do to their friends andneighbors who are laid off due to domesticcompetition. Anyone must agree that this isunfair. 3

-.I Add ress Before a J o i n t Session o f the (;ong ress on t h e Pro-

gram for E(, onorn it. Reco\rery, ~’eb. 18, 1~81 , ~’[lb]l(; }’(J/X?IS of

the [%~si(ients of the 1‘niteci .States. Ronald Keagatl, 1981, p. 111.

Another objection to a special assistance pro-gram for trade-affected workers is that it is dif-ficult to pinpoint the cause of worker displace-ment, This is more true today than when theprogram was created; in 1962, U.S. involvementin world trade was much slighter than it is now,and trade-affected workers easier to identify,In today’s world, worker displacement resultsfrom a combination of causes, hard to disen-tangle—competition from imports, domesticcompetition, and automation in response tocompetition, as well as changes in consumertastes and failures of management. Under thelaw and Labor Department regulations, the cer-tification of workers for TAA seems to be quitereliable in excluding workers who are not af-fected by trade, but it is not so good at includ-ing all those who are affected, at least indirectly.Inevitably, the distinctions between those whoget benefits and those who don’t are sometimesunfair or illogical; and the whole process of ap-plying the distinctions takes time. These are un-avoidable features of a program targeted to justone class of workers—those affected by trade,

As part of its evaluation of TAA for workers,OTA interviewed the administrators of TAAand Title III programs in 39 States, on strengthsand weaknesses of the two programs and co-ordination between them.4 Many of these offi-cials favored combining the two programs, bothfor administrative simplicity and for equity, Be-cause of the intricacies of eligibility for TAA,there may be two classes of workers within asingle plant, or even among partners on the as-sembly line. Foreign competition has strong in-direct impacts, said one State official, so whyrestrict some benefits only to those directly

40TA requested inter~’iew’s ~v it h progra m ad m i n 1 St r,it o r> i n40 States, including all that had any substantial nl]mber of TA.~-certified workers in fiscal years 1985 and 1986; i n t ert iews 1~’ereconducted in all but one of these States. hlost of the inter~’iew. swere by telephone; man]’ of the States proi’ided writt Cn ans~t. ersto a brief suri’ey as well. OTA staff \’isited one State (hlassachu-setts) for interviews. The States inter~ie~l’ed ~~’ere Alabama,Alaska, Arizona, California, Connecticut, Il(:lii\\iir(:, F’lorida,

Georgia, Idaho, Illinois, Indiana, Kansas, Kentuck}, Imuisiana,Maine, Maryland, Nlassachusetts, Michigan, hfinnesota, Nfis-souri, Montana, N“ebraska, NeII’ Hampshire, New. Jersey, N’ort 1]Carolina, North I)akota, Ohio, Oklahoma, Oregon, Penn\ }l\ania,Rhode Island, South Carolina, Tennessee, Texas, I’errnont, i’ir-ginia, Washington, \4’isconsin, t$’~oming.

38

affected—” It makes for bad feelings. ” In one tioned, however, against losing special TAAState (Pennsylvania] a steel company that had benefits, such as greater support for training,been certified as import-affected in one year if the two programs are combined. One said:was turned down the next—just before it closed. “Our fear is they will take the worst parts ofThe reason was that there was no evidence of each program. ”an increase in imports in the year of closure.“This makes absolutely no sense,” said these A variant of the equity argument in supportofficials. (See box A for another example, the of TAA is that the program is politically neces-auto industry.) Several administrators cau- sary to defuse demands for tariff or quota pro-

39

tection against imports, Brookings Institutionauthors Lawrence and Litan, for example, say:“Rather than acceding to protectionism, law-makers should develop effective policies for eas-ing the dislocations induced by trade.”5 Theyargue that protection can cost much more thaneven a generous adjustment program.

Extra Benefits Under TAA

Vocational Skills Training

In 38 of 39 States surveyed, officials cited thesuperior support for training under TAA as agreat advantage for eligible workers. First, TAAprovides income support at the level of UI ben-efits for as long as 78 weeks, which includes26 extra weeks for people in approved train-ing courses, Title III offers very little in the wayof income support; though services that sup-port training, such as child care and transpor-tation, can be approved for reimbursement,they seldom are.6 As a rule, the only publiclyprovided income support for displaced work-ers in Title III training is UI, which lasts nomore than 26 weeks (except when unemploy-ment rates are exceptionally high), In addition,TAA can pay for tuition and fees for trainingcourses that last as long as 2 years. And, untilrecently at least, there was more money avail-able for training costs, per person, in the TAApot than in Title III. Although there is no ex-plicit time or money limit for training coursesunder Title III, managers have to juggle the de-mands of many clients for limited resources.Also, most Title III training courses are plannedto be short enough to fit into the 26 weeks ofeligibility for UI. In 1985, the average lengthof classroom training under Title 111 was 9weeks. 7

States report that the more generous supportfor training and income maintenance under

5Robert Z, Lawrence and Robert E. Lita n, ‘‘Living With theTrade Deficit: Adjustment Strategies To Preserve Free Trade, ”The ~rookjngs ~e~riewr, fal] 1985.

‘U.S. Congress, Office of Technology Assessment, Technoi-og~’ and Structural Unemplo~’ment, op. cit., p. 436,

‘U.S. Congress, General Accounting Office, Dislocated il’ork-ers: Local Programs and Outcomes Under the Job Training Part-nership Act (Wash ington, DC: 1987), p. 47.

TAA allows workers to enroll in courses thatwill give them more advanced skills and thepotential for a higher wage. Some workers areable to complete college degrees with TAA help.Also, having a longer period for training meansthat there is time for people to be assessed, andfor them to makeup their minds to put up withthe sacrifices and make the commitments thattraining requires, Moreover, it allows time forthose who need it to get remedial education be-fore undertaking vocational skills training, OneState JTPA manager explained that, from herpoint of view, there is a different mind set abouttraining in the two programs, because (untilquite recently) TAA training funds were suffi-cient to provide training to all the eligible work-ers who wanted it, “With Title III, you haveto spread it thin. With TAA, it’s a gift. ”

One or two State officials demurred on thevalue of TAA-funded training, One (in Illinois)said that workers sometimes “take advantage”of expensive training and lucrative income ben-efits that may not really be in their best inter-est. Another (Oregon) said, more critically, thatworkers play the TAA and Title 111 programsagainst each other, dropping out of JTPA whenthey are eligible to enter longer term TAA train-ing, with its extended income support.

The idea that workers enter training in or-der to get the extra 26 weeks of TRA benefitswas only rarely encountered among the Stateofficials OTA interviewed, but it has been a cau-tionary note in the reports of some analysts ofT A A .8 A more common criticism is that T A A

training has been ineffective in preparing work-ers for jobs. Lawrence and Litan cite Labor De-partment figures to show that the percentageof workers completing training under TAA, andthen finding jobs related to their training, was7,6 percent from 1977 to 1981, and dropped toonly 4.1 percent from 1982 to 1984.9 Labor De-partment officials say, however, that thesefigures cannot be taken at face value. Most

Wee, for example, Lawrence and Litan, op. cit.; also, RobertZ, Lawrence and Robert E. Litan, Salrin,g 1+’ree Trade: A fJrag-matic Approach [Washington, DC: The B rookings Institution,1986), pp. 58-59.

‘Ibid.

40

placements of TAA trainees are probably nevereven reported because there is no follow up ofparticipants; the placements that are reportedmust meet a very rigid definition that was de-veloped to distinguish which placements couldbe credited solely to the efforts of ES offices.

It is notoriously difficult to evaluate the ef-fect of training programs on job placement andearnings; most past studies are of disadvan-taged workers, and show mixed but modestlyfavorable results. Experience with displacedworker programs, and the few statistical studiesavailable, suggest that in well-run programs,where applicants and training courses are care-fully matched, and the training is planned tomeet demands in the local labor market, train-ing in a new skill pays off. For a substantialproportion of displaced workers, on the orderof 20 to 30 percent, skills training is the bestway to regain the ability to earn a middle classwage. *O

The principal disadvantage to training un-der TAA alone, according to the State officials,is lack of guidance. In 25 of 39 States, officialsof TAA or JTPA, or both, said that Title 111projects offer far more individual counselingand assessment than the ES does for the TAA-certified workers it serves. According to GAO,84 percent of Title III participants get some in-dividual job counseling.11 Several State officialscommented that while the sole purpose of TitleIII is to serve displaced workers, the ES wasestablished as a job exchange service for every-one to use. The ES has neither the staff nor themoney to concentrate on the needs of trade-affected workers—especially since the fundingcuts and 20 percent staff reduction since 1981;much of the staff cut was taken in counseling,

Although TAA has administrative moneyequal to 15 percent of program costs, the LaborDepartment releases these funds only aftertraining is approved for individual workers, notbefore. The lack of budgeted administrative

10Us. Congress, office of Technology Assessment, Techno~-

ogy and Structural L’nemp]oyrnent, op. cit,, pp. 170, 250-260,and passim.

II us. congress, Cenera] Accounting Office, Dislocated ~~ork-

ers, op. cit., p. 5 0 .

funds for TAA, combined with the generalshrinkage of funds and staff, discourages plan-ning for TAA activities; most ES offices do notkeep any full-time staff dedicated to servingTAA-certified workers. Said one TAA official(New Jersey):

Our biggest frustration is lack of funds forpersonnel. We need specialists who can con-vince the workers to enter retraining and, ifthey need it, basic education.

The paucity of counseling in the ES officesmeans that many TAA-certified workers are ontheir own in choosing from a list of approvedtraining courses. Many people experienced intraining of displaced workers consider this badpractice—especially considering the fact thatmany displaced workers have held just one jobthroughout their adult lives, and have littleknowledge of the job market or demand forskills. “We make no bones about it, ” said oneveteran project director. “We help them chooseany training they’re going to take. The resultsare better, ” A State director of displaced workerservices put it this way:

TAA relies on the individual worker to knowwhere to go. That’s too random a system, Itleaves people in a self-service position. In Ti-tle III we are the motivators.

Two TAA officials (Maryland and Pennsyl-vania) said that the ES offices in their Statesdo as much as they can to assess individualsand match them with appropriate training, butperhaps assessment by the ES is not entirelynecessary since the institutions offering courseshave their own admissions requirements anyway,

At the time of OTA’s telephone survey, earlyin 1987, the States’ greatest complaint aboutTAA training was that the money was runningout. The law requires that TAA-certified be ad-vised of opportunities for training. But Stateafter State had proposals for training turneddown or pared down, for lack of funds. Train-ing funds had also run short toward the endof the 1986 fiscal year, but the situation wasmore acute in 1987. Of the $26 million appropri-ation for training and relocation benefits forfiscal year 1987 (ending Sept. 30, 1987), 70 per-cent was obligated by January. Of the remain-

41—

ing $8 million, the Labor Department set asidehalf for relocation benefits, which are consid-ered entitlements under the law. That left $4million for training for the last 8 months of thefiscal year.12

Some States could turn to Title III funds forat least some of training needs for displacedworkers (assuming sufficient coordination be-tween the two programs). But others had runout of their Title III funds for the year and hadnothing left to obligate. Three-quarters of TitleIII funds are allocated among the States by aformula in the law, based on the State’s shareof the national labor force and it unemploymentrate. It was these formula funds that many (notall) States had fully obligated well before halfthe Title 111 program year was over.13 The otherone-quarter of Title III funds is given out at thediscretion of the Secretary of Labor, but mostof this was also obligated.14

Out-of-Area Job Search and Relocation

As with training, there is no explicit limit onwhat Title 111 projects can pay to reimburseworkers for costs of job hunting outside theircommuting area, or for moving expenses. Butagain, the need to “spread it thin” dictates

I Lrrhe fu ] ] ;Il)p ropriat io o for training and relo~at ion, i IIc]Ud 1 Ilg

$3.9 million for administrate i~e costs, was $29.9 million. As thisreport was completed, in May 1987, the House of Representa-t i~es had passed a supplemental appropriations bill that woulclpro~ride an extra $ZO million for TAA training and relocationass i sta nce for fiscal ~’ea r 1 !387, The Senate Appropriate ions Com-mittee had reported a similar bill, but the Senate had not yet acted.

1s J ‘r [1A programs at-e operated on a program year which runsfrom July. I to June 30 of the following year. Congress appropri-ates funds for these programs in advance, by fiscal year, Forexample, Congress appropriated $100 million for Title 111 pro-grams for fiscal ~ear 1986, which began Oct. 1, 1985 and endedSept. 30, 1986. States began spenc]ing fiscal year 1986 funds onJuly 1, 1986, which \\’as the beginning of the 1986 program yearThus, program year spending begins about SI months after it isappropriated. I n early 1987, many States had exhausted theira] locations of fiscal year 1986 money. Although funds for fiscalyear 1987 were al read}’ appropriated, at $223 million for the year,States could not start spending that money until the new’ pro-gram ~ear began on luly 1, 1987. Not all States hacl exhaustedtheir formula money; a number have not been very active in pro-liding Title III ser~’ices, and have amassed unspent funds. Seethe discussion of spendin~ for Title 111 programs in U.S. Con-

gre~~, Office of Technology Assessment, TechnoIog~ and .5’truc-tura] [ ‘nen?p~()~’ment,, op. cit., pp. 186-189,

1~ ] n In i(j. \f a r(; h 1987, t h er~ m,as about $7 m il} ion ]eft 111 theSe(, retar~’s dis(:retionar~’ fund, to last through June 30, but there~t’ere al read! proposals i n the pipe] i ne for much of the rema in(ler,

against spending too much for any one personon costs of relocation, Few projects, in fact, putmuch emphasis on relocation. Under ordinarycircumstances, without a good deal of help, in-formation, and assurance of both a job andacceptable, affordable living conditions on theother end, rather few blue-collar workers con-sider relocating to get a new job. Middle-agedand older workers are especially disinclined tomove. Not only are the costs often high—sellinga home in a depressed market, abandoning fam-ily and community ties, giving up a spouse’sjob—but the rewards are relatively small forthose who have few working years ahead ofthem.

Under TAA, out-of-area job search and relo-cation benefits are generous. They can coverup to 90 percent of outlays, with a cap of $800for each; and the Labor Department considersthem an entitlement, which means that any cer-tified worker who properly applies for themgets them. The number of workers getting thesebenefits has never been very large; about 13,300people received relocation allowances from1975 to 1986, and around 9,600 got out-of-areajob search benefits over the years (no doubtmany were the same people). In the first 3months of fiscal year 1987, nearly 900 got relo-cation allowances—an annual rate of about3,600, which would be an all-time high if itpersists,

The recipients tend to be concentrated in afew States—recently, California, Minnesota,Pennsylvania, and Arizona, In Arizona, for ex-ample, both the Title III and TAA programshave been exceptionally active in supportingrelocation of displaced workers. As many as60 percent of the State’s Title III clients havelost jobs in the deeply depressed mining areas,so that moving to Tucson or Phoenix, whereunemployment rates are relatively low, is anattractive option. Because of competing de-mands for Title III money, State officials puta limit of $650 per worker from the JTPA fundsfor moving costs. The TAA allowances makeit possible to offer relocation help to many moreworkers—about 30 percent of TAA-certifiedworkers in Arizona use it, according to Stateofficials—and the allowances are usually larger.

72-674 0 - 87 - 3

42

Extended Income Support

Historically, extended income support for theunemployed has been the major benefit of theTAA program for workers. From 1975 to 1986,nearly 1.5 million trade-affected workers re-ceived TRAs, and 55,000 are projected to getTRA benefits in fiscal year 1987.15 The basicbenefit is a guarantee of 52 weeks of incomesupport payments at the level of the individualworker’s unemployment insurance, Since UIusually lasts only 26 weeks, TRAs cover anextra 26 weeks of unemployment. (As notedearlier, workers in training can receive TRAsfor 52 weeks, added to the regular 26 weeksof UI.) TRAs are an entitlement. Once a workeris certified, and applies for his TRA within theprescribed time, he automatically gets it.16

One argument for TRAs is that trade-affectedworkers are likely to remain unemployed longerthan the average person who is out of work,because they are more likely to have to changetheir industry or occupation to get a new job.Thus they need extra time to adjust—to learna new skill or look for a different kind of job,Whether TRA payments actually help trade-affected workers’ adjustment in this way is byno means certain. Some analysts argue that ex-tended income support may be counterproduc-tive, postponing the time when the worker mustcome to terms with the loss of the old job andseriously look at training, reemployment, orrelocation options, One study of displacedworkers (not just trade-affected workers) foundthat those who remained out of work the long-est before finding a new job took greater thanaverage pay cuts when they did finally get reem-ployed. This suggests, said the authors, that along spell of joblessness may mean that a workerhas particularly severe adjustment difficulties,

15As noted above, this estimate is probably on the ]OW side.IeAs noted earlier, TRAs are drawn from the Federal Unem-

ployment Benefits Account, which receives an annual appropri-ation and funnels the money into TRAs. If the FUBA accountruns out, as it did in fiscal year 1986 when TRAs unexpectedlymounted up to $119 million, TRAs can be drawn from anotheraccount that supplies advances as needed for several entitlementprograms. If that account runs dry, the Labor Department canask Congress for a supplemental appropriation.

but that extended job search does not, on aver-age, produce better jobs. 17

The arguments in favor of TRAs are, first,that they are a part of the bargain governmentmade with workers, exchanging adjustmentbenefits for a policy of free trade and, second,that TRAs are a small price to pay for the ad-vantages of free trade. One analyst, advancingboth equity and political arguments for TRAbenefits, advocates large lump sum paymentsto workers displaced by trade, funded by a smalltariff on imports.18 The reason for paying TRAbenefits in one lump sum is that it avoids link-ing benefits with duration of unemployment,and thus possibly discouraging workers fromfinding a new job as soon as they can. Accord-ing to this analysis, a payment of $24,000 eachwould compensate displaced steel and autoworkers for the loss of roughly one year’s sal-ary (omitting non-cash benefits),

Most of the State Title III and TAA officialsinterviewed by OTA were eager to keep theTRA income support feature for workers intraining, indeed to extend it to all displacedworkers, not just trade-affected workers. Lesssupport was voiced for TRAs that are not tiedto training. In Massachusetts, however, one ESofficial said that trade-impacted workers de-serve a little bit extra, and that TRAs are neededespecially for older workers whether they arein training or not, because it is hard for themto find new jobs. The Administration proposalto abolish TAA and replace Title III with a newworker readjustment program open to all dis-placed workers would allow Federal grants tobe used, to a limited degree, for extended in-come support for people in approved trainingcourses. To qualify, workers would have to optfor training by the tenth week of their UI bene-fit period. This is another approach to dis-

ITMichae] podgursky and Paul Swaim, “Labor Market Adjust-ment and Job Displacement: Evidence From the January 1984Displaced Worker Survey,” report to the U.S. Department of La-bor, Bureau of International Labor Affairs (Amherst, MA: Univer-sity of Massachusetts, Department of Economics, 1986).

InLouis Jacobson, “Trade Adjustment Assistance: An Assess-merit, ” paper presented to the National Council on EmploymentPolicy (Kalamazoo, MI: The W.E. Upjohn Institute for Employ-ment Research, 1986].

43

couraging workers from tacking on training asa way of extending income support payments.

So long as extended TRAs are given to dis-placed workers who meet a quite restrictive def-inition of trade-affected, one might argue thatit is only fair to give similar extended incomesupport (or alternatively, lump sum payments)to all displaced workers. Almost no one does,however. One reason is that the equity argu-ment weakens as the connection between dis-placement and foreign competition becomesless clearly visible. Another reason is that ex-tending TRAs to more people would cost extramoney, Assuming, for example, that about600,000 more people per year would collectTRAs if all displaced workers were eligible, andthat the average payment to a TRA beneficiarywere $3,200, the extra cost would be about $1,9billion per year.19

Another idea is to provide a temporary wagesupplement to trade-affected workers who takenew jobs at lower wage; thus, the worker wouldnot have to be unemployed to get the benefitof income maintenance. This proposal recog-nizes that displaced workers usually have totake a cut in earnings when they get a new job.A temporary wage supplement, perhaps equalto half the value of a TRA payment, might en-courage some workers to take a new job evenat a lower wage, rather than holding out longerin hopes of getting a better one. These workerswould have the benefit of getting back to worksooner than they otherwise would, gaining ex-perience, and getting a start toward regainingsome of their former earning power.

A variant of the wage supplement idea is the“reemployment bonus” that the Department of

19A Bureau of Labor Statistics survey in January 1986 foundthat 10.8 million adult workers had lost jobs from 1981 to 1986because of a plant closing or relocation, abolition of a positionor shift, or slack work. About 3.2 million of these, or about 647,000per year o~er the 5 years, were without work for 27 weeks ormore after displacement. According to rough estimates by theI,abor Department, approximately 55,OOO TAA-certified work-ers are expected to co]lect TRAs in FY 1987 for an average periodof 22 weeks, with payments averaging $147 per week. The esti-mate of $1.9 billion is based on the assumption that 592,000 ex-tra workers per year (647, ooo less the 55, OOO who now recei~’eTRA payments) would each collect $3,200 in benefits, if extendedincome support ~tere open to all displaced workers.

Labor and the State of New Jersey have in-cluded in a demonstration research project inthe UI system. In the experiment, workers re-ceiving UI are offered the chance, in their sev-enth week of unemployment, of collecting acash bonus equal to half their remaining UI en-titlement (about $1,500 in New Jersey) if theyfind a full-time permanent job within the next2 weeks, The bonus declines by 10 percent aweek, reaching zero at the end of the 18th week.

Difficulties With TAA

Some of the difficulties States report withTAA have already been touched upon. A sourceof great frustration at present is the scarcityof TAA money for training. The law requiresthat workers be advised to enter training, yetbefore the end of the first quarter of fiscal year1987, the States were encountering delays,denials, and steep cutbacks in their trainingproposals, because the training money was fastrunning out.20 In addition, many States concedethat they do not meet the needs of their TAAclients for counseling and guidance, becausetheir funds and staff are stretched too thin. Sec-ond only to their concern about training money,the States’ most numerous complaints had t odo with eligibility and certification of workers.

Delays

First, there are the delays in certification. Thelaw allows 60 days for responses to TAA peti-tions, but when a flood of petitions comes ina decision by the Labor Department can dragon for 6 months or more. In fiscal year 1984,when 433 petitions covering about 36,000 work-ers were initiated, the average response timewas close to the required 60 days. But in fis-cal year 1985, over 1,000 petitions, covering115,000 workers, came in, and in fiscal year1986 nearly 1,300, covering 108,000 workers.Delays of several months in handling petitionswere the rule, not the exception. In September1986 the Department of Labor took several stepsto speed up the response, including simplify-

ZOAS noted, the House had voted a supp]ementa] appropria-tion of $20 million as of Ma}” 1987, and the Senate was prepar-ing to consider it,

44

ing the collection and reporting of data, anddelegating some of the work to the 10 regionaloffices of the Labor Department. By May 1987,officials reported that 85 percent of petitionswere getting a response within 60 days.

Despite this improvement, some delay is in-evitable in getting TAA certification. Even if100 percent of petitions were processed within60 days, that much delay would still seriouslyhamper the delivery of employment and train-ing services to displaced workers. One of thecritical elements for success in displacedworker projects is early action. A full range ofservices should be ready, if possible, the dayof the plant closing or layoff, when demand forassistance peaks. A lead time of 2 to 4 monthsbefore the layoffs is needed for planning andpreparation. 21 The law gives Title III programswide latitude to respond quickly to plant clos-ings; services can begin even before layoff ifthe employer gives notice in advance. A fewStates are organized to provide services effec-tively and quickly when plant closings or masslayoffs are announced, but most are not.22 ManyStates are showing a keen interest in improvingtheir rapid response abilities; the Labor Depart-ment is helping States learn how to do it; andbills from both parties and in both Houses ofthe 100th Congress proposed to strengthenrapid response mechanisms, Already, the pos-sibility is at least there in Title III programs.In TAA it is not.

Another cause of delay is that many workerswho would be eligible for TAA benefits do notknow the program exists until long after theylose their jobs. The Department of Labor doesnot make aggressive efforts to inform State em-ployment security agencies about the TAA pro-gram. In turn, some State agencies and localES offices are far from adequate in informing

ZIFor a fu]]er discussion, see U ,S. Congress, Office of Tech-nology Assessment, Plant Closing: Advance Notice and RapidResponse, OTA-ITE-321 (Washington, DC: U.S. GovernmentPrinting Office, September 1986), pp. 12-16. See a]so the conclu-sions in the Report of the Secretary of Labor’s Task Force, op. cit.

ZZU, S. Congress, Office of Technology Assessment, plant C’lOs-ing, op. cit., pp. 28-32.

workers.23 Some are misinformed. For exam-ple, a group of steel workers who lost jobs atan Armco plant in western Pennsylvania werecertified in the spring of 1983, and applied soonafter for TRAs. ES officials told the workersthey could apply if they liked, but there wasno money to pay for benefits. This advice wasnot accurate; TRAs are an entitlement, drawnfrom the Federal Unemployment Benefits Ac-count. Over a year later, some of these sameworkers decided to apply for training, and re-quested TRAs for income support. Now, theywere told, their eligibility had expired. Theyappealed, and in this case their TRAs were re-stored. But such delays can be fatal to a work-er’s drawing benefits, because there are timelimits to eligibility for TRAs.24

Eligibility: Drawing the Lines

Workers can be certified for TAA benefitsonly after the Labor Department investigatesthe firm they worked for, and finds that: 1) asignificant number of workers in the firm havelost their jobs, or are threatened with job loss;2) that sales or production, or both, of the firmhave decreased; and 3) that imports of articles“like or directly competitive with” articlesproduced by the firm in question were as im-portant as any other factor in causing the de-clines. Labor Department investigations arestrict on this last point; proof is required thata firm’s clients have switched to foreignproviders of the same article the firm makes.Also, the influence of imports must be recent;the Labor Department looks at records of thefirm for the past 2 years only,

ZsLoca] ES offices vary widely in their knowledge of the TAAprogram and diligence in letting workers know about it. Somedo an outstanding job. For example, in 1985 congressional hear-ings the Lorain, Ohio ES office and counselor Ella Tomka gothigh praise from a number of TAA-certified workers who weresteered into effective training through Ms. Tomka’s efforts. SeeU.S. Congress, House of Representatives, Committee on Waysand Means, Subcommittee on Trade, Hearings on Trade Adjust-ment Assistance for Workers, June 10, 1985, Lorain, OH (Wash-ington, DC: U.S. Government Printing Office, 1985),

Z4Congress has recently responded to many reports of prob-lems workers have had with time limits for TAA eligibility. Asreauthorized under COBRA in April 1986, the eligibility periodfor TRAs was doubled; however, workers must still apply fortraining within 210 days of becoming eligible for TAA, in orderto receive extended TRAs during training.

45

Further restrictions in the law exclude someworkers who clearly are affected by foreigntrade. Services are not covered. Oil well drillers,for example, submitted petitions in droves af-ter oil prices plunged in 1986, U.S. explorationand production dropped precipitously, and oilimports rose. But the Department of Labor con-sidered drillers to be service workers, and theirpetitions were denied. (Some petitions werealso denied because imports were not consid-ered to be the cause of declining sales or pro-duction.) Services are covered only if they in-tegrated into a goods-producing enterprise, Thepresent trend among many manufacturers isto shed some of their service divisions (engi-neering design, for example) and buy the serv-ices from independent firms—whose employ-ees would not be eligible for TAA if they weredisplaced.

Another big exclusion is supplier industries.This is why shoe workers were certified whenforeign shoes were coming to dominate the U.S.market, but workers who make rubber heels forthe shoes were not certified. Rubber heels perse are not imported; thus the firm that makesthem does not close down because of the im-port of a “like or directly competitive” article.The same is true of tires made for new cars.If General Motors sells 1 million fewer cars be-cause of Honda or Toyota imports, the GMworkers are certified; but the Goodyear work-ers who once made tires for those GM cars arenot certified, The Labor Department applies thesame rule to suppliers as to services, that is,they are covered only if they are employed byan integrated company. For example, minersproducing coal for steelmaking in an integratedcompany, USX, are certified because USX isimport-affected; but coal miners employed byan independent coal company, Pittston, thatsells the coal to a steel company are rejected.

The legislation to reauthorize TAA that failedto pass Congress in December 1985 would haveextended TAA eligibility to workers supplyingessential parts and services to manufacturersexperiencing declines on account of importcompetition, Such an expansion might causesome administrative problems, since second or-der import effects are probably harder to pin

down. It would also cost more money. The samebill contained a new source of funding how-ever; it authorized the imposition of a uniformtariff on all imported goods, up to 1 percentof their value. The Administration opposedsuch a tariff, partly on grounds that it was ille-gal under the General Agreement on Tariffs andTrade (GATT), and a Presidential veto wasthreatened, The bill would have required thePresident to negotiate with the other parties toGATT over the following 2 years to allow a uni-form fee on imports for adjustment purposes.The idea of a tariff to fund TAA was still aliveand attracting interest in the 100th Congress.

Another idea that has been broached fromtime to time, both to get rid of anomalies andinequities in certifying workers for TAA andto reduce certification delays, is to make find-ings of import injury for entire industries. Thefinding of declining sales and production wouldnot be necessary for individual firms. In iden-tifying trade-affected industries, it might makemore sense to look at import trends over thepast decade or so, rather than confine the ob-servation to the past 2 years, as the Labor De-partment does for firms. Sometimes firms inindustries confronted by rising imports are slowto react, and postpone technological or organi-zational changes that help the firm compete butcall for reductions in the work force. (See boxA for an example,) Thus, industrywide certifi-cation could extend TAA benefits to workerslaid off from firms that are able to survive for-eign competition, perhaps by adopting newlabor-saving technology, or by trimming lessprofitable operations, or by sending some oftheir work offshore to places where costs (espe-cially labor costs) are lower.

Another possible change, included in theHouse-passed amendments to TAA in 1985 (butnot in the bill as reported by the conferencecommittee) is to extend eligibility to workerslaid off or threatened with layoff because of therelocation of production to another country.

Directors of displaced worker programs pointout that the wait for TAA certification firm-by-firm not only delays the delivery of services toworkers, but makes it very hard to plan, since

46

you cannot confidently predict that a firm willbe certified. In extending eligibility and mak-ing it more equitable, the change would prob-ably bring more workers into the program, andcost more money. Also, identifying industriesthat are trade-affected poses some difficulties .25

The time limits on eligibility, mentionedabove, have in the past been the cause of someworkers failing to get benefits even when co-workers succeeded. In certifying groups ofworkers, the Labor Department establishes animpact date for the import injury; the individ-ual worker’s first layoff after that date startsthe clock running on his period of eligibilityfor unemployment insurance and subsequentlyfor TRAs. Until COBRA was passed in April1986, the worker remained eligible for TRAsfor 1 year after exhausting his eligibility for UIunder that first layoff. COBRA changed thatperiod to 2 years after exhausting UI eligibil-ity under the first layoff following the impactdate. The reason for the extension is that plantsin decline do not always lay off everyone atonce. If the impact date is set too late, someworkers who actually lost their jobs due to thedecline lose their eligibility. If the impact dateis set earlier, some workers who have been laidoff once, then recalled, and then laid off againlater, have found their individual period of eligi-bility, reckoned from the first layoff, much re-duced, compared to co-workers who were laidoff later. The 2-year period of eligibility pro-vides more flexibility to avoid such difficulties,but some persist. Some State officials suggestthat, in addition, the period of eligibility shouldbe determined by the last layoff, not the first.

A continuing source of inequality, sometimesfound among workers from the same plant, isthat the Labor Department certifies import in-jury by product. Suppose one plant makes toast-ers, toaster ovens, electric coffeepots, and waf-fle irons, and that only the first two are foundto be injured by imports. Then only the work-ers making those items are certified—yet thewhole plant may be moved or closed down, and

Zssee the discussion in the section entitled PO]iCY Issues fJII~

Options.

everyone loses his job. The workers who madecoffeepots and waffle irons are out of luck.

Ever since TAA began, a major difficulty hasbeen that many workers never find out aboutit. Unions, employers, or as few as three work-ers in a group affected by imports may peti-tion for certification. Unions have been themost active petitioners. The General Account-ing Office pointed out in a 1977 report that 80percent of petitions were filed by unions, butthat only 35 percent of manufacturing work-ers were then represented by unions. In 1980,GAO reported that a new sample (taken in 1978)showed that 64 percent of petitions were filedby unions—still a disproportionate figure.26

The great variation over the years in totalnumber of workers certified for TAA benefitsreflects not only legislative changes but alsoshifts in Administration policy and Labor De-partment practice. As noted above, certifica-tions that had been running at around 150,000to 200,000 per year soared to 685,000 in fiscalyear 1980, of which 592,000 were for auto work-ers; the Carter Administration policy in 1980was to award TAA benefits generously to autoworkers losing jobs to imports. When the Rea-gan Administration took office, the policyshifted to a clampdown on certifications. From1981 to 1985, the Labor Department certified20 percent or fewer of the workers applying.When the approval rate rose in fiscal year 1986,so did the number of workers certified; 92,000workers were certified that year, compared to25,000 in 1985. In the first half of fiscal year1987 certifications were running at an annualrate of 110,000 to 140,000.

The Job Search Program Requirement

When Congress reauthorized TAA in April1986, in COBRA, it added a requirement thatworkers must be enrolled in a job search work-shop or job finding club in order to qualify forTRAs, unless the worker has already completeda job search program, or unless none is reason-

Z13U, S. Congress, General Accounting Office, Restricting TradeAct Benefits, op. cit., pp. 32-35.

47

ably available.27 These programs are meant tohelp workers learn how and where to look forjobs; many displaced workers have had just onejob in their lives, and they got it simply by ap-pearing at the plant gate.

Neither Congress nor the Department of La-bor has allocated extra funds to the Employ-ment Service to provide job search programsto TAA-certified workers; ES offices are ex-pected either to furnish the programs them-selves or to refer workers to other programs,such as Title 111 or the Work Incentive Program(WIN), that can furnish them. Findings that nojob search program is reasonably available can-not be made en masse; waivers must be writ-ten individually,

Of the 39 States OTA surveyed, 21 said theyhad no problems with the job search require-ment or had experienced few so far. Some ofthese States had very few TAA-certified work-ers; others said they were meeting the require-ment with job search programs already offeredin their ES systems; others had set up new sys-tems to cope with the requirement, and foundthey were working adequately so far. The other18 States reported various degrees of difficulty.Some were not able to serve workers in ruralareas and were giving them waivers; somefeared that a big plant closing would overloadtheir ability to provide the service. In five States,officials said they were already overloaded, andwere waiving the requirement for many work-ers. Some officials expressed dismay thatanother burden had been put on the TAA orTitle III programs with no extra money to copewith it. No one had any quarrel with the re-quirement itself; nearly everyone thought thatjob search programs are worthwhile. For ex-ample, a Wisconsin Title III official said,

We’ve had trouble figuring out how in theworld to pay for it. We don’t have near enoughmoney to do the Title III job, and now haveanother job shoved at us, It makes perfectsense to give TAA-certified workers job searchtraining; paying for it is the problem. . ., Wehave a large need and small funds.

The Department of Labor’s Role

According to some State officials, the U.S.Department of Labor made it difficult to get peo-ple into the TAA program in the early 1980s,but this approach has recently changed. OneState administrator said:

The TAA program got off the track in 1981.It just got back on last summer [1986]. They[the Labor Department] are not being advo-cates, but the approach is now much moreopen,

At the time of OTA’s survey, there were com-plaints that the Department gives too little helpto State agencies administering TAA, that asa result workers never hear of the program, andthat if they do, they maybe misinformed by ESor UI staff who do not understand the programthemselves.

Several officials reported difficulties becauseof protracted delay in publishing TAA regula-tions. Eligibility and certification rules for TAAare complex; yet a compilation of the regula-tions implementing the 1981 amendments tothe program (in OBRA) was not published un-til December 1986. To understand the LaborDepartment’s rules on how to administer TAA,local officials would have had to keep a scrap-book of notices appearing in the Federal Reg-ister over nearly 6 years. In May 1987 the La-bor Department reported plans to publish a setof proposed regulations for the TAA programas amended by COBRA in 1986 within a monthor so.

ZzThe law defines a job search workshop as a short (1- to s-day] Coordination Between TAA andseminar designed to teach participants skills in finding jobs;among the subjects the seminar should include are labor market Title III Programsinformation, resume writing, interviewing techniques, and tech-niques for finding job openings. A job finding club is defined In early 1987, coordination between the twoas a job search workshop that includes a I- to 2-week period of major programs serving displaced workers wasstructured, supervised activity in which participants try to findjobs, The term “job search program” means either a job search improving but had a long way to go, Successworkshop or a job finding club. in coordination is an important issue for sev-

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eral reasons. First, Congress has reauthorizedTAA through 1991—the longest extension ofthe program since TAA was overhauled in1981, Second, the Administration has proposedto replace TAA and Title III with one displacedworker program; coordination of the two pro-grams, taking advantage of the strongest fea-tures of each, is an alternative, Third, the fund-ing situation in 1986-87 made coordination ofthe programs a practical necessity in manyStates. Funds available for the Title III programyear beginning July 1, 1986 were less than halfthose available for the previous program year;Congress cut the appropriation because, on anational basis, there was a large, continuingcarryover of unspent Title III funds from oneyear to the next. However, the States that hadbeen most active in serving displaced workerswere the ones that felt the financial pinch most,since they had little unspent money from pre-vious years.

States are almost wholly responsible for plan-ning and operating Title III programs; TAAservices to workers are provided by State em-ployment security agencies, through the localES and UI offices. In a May 22, 1986 letter tothe Governors, the Secretary of Labor urgedStates to

, . . establish a common and coordinated de-livery system for training, job search and relo-cation assistance . . . [that] will reduce dupli-cation of effort, improve cost effectiveness andimprove delivery . . . 28

OTA’s survey of TAA and Title III officialsin 39 States found that all but four States makesome effort at coordination, However, onlyabout a dozen had some degree of real integra-tion of services. The majority of States coordi-nated through a system one official describedas “paper shuffling”; that is, TAA officialsnotify the Title III program when workers arecertified, and Title III informs TAA of majorplant closings and layoffs, While TAA officialsin many of these States notify companies andunions of the program and the services offered,they usually do not take active steps to make

~B’rhe H onorabl~ will iarn E. B roc k, Secretary of Labor, letterto the Governors, May 22, 1986.

sure that someone has petitioned the Depart-ment of Labor for certification. Actual coordi-nation of services in most States is limited anduneven.

States give several reasons for their limiteddegree of coordination, Many report that thegreatest barrier to coordination is the time ittakes to get certification. A New Jersey official,for example, said that by the time the Depart-ment of Labor approves petitions, most of theworkers have completed their stay in the TitleIII program, have exhausted their UI, and haveeither found work or left the program, For thisreason, many States do not consider TAA anintegral part of their displaced worker program,but view it as a fortuitous added benefit if cer-tification is approved, Several States reportedthat certification has sped up considerablysince regional Department of Labor offices tookover part of the task of investigating petitions(starting in October 1986). One State (Washing-ton) said that decisions were not only faster,but more consistent, since the regional officeshave fewer petitions to deal with and have abetter understanding of the history of certifi-cations in their own regions.

Other reasons for the limited coordinationin a majority of States were also offered. SomeStates, such as Pennsylvania and California,give a great deal of leeway to the local ServiceDelivery Areas (SDAs) in administering TitleIII services.29 Thus, coordination of services de-pends very much on the SDA’s knowledge ofTAA and how it can be used to complementTitle III. Some States referred to off-again on-again funding and authorization for TAA (thelapse in authority from December 1985 to April1986 and the funding cuts of the early 1980s)and difficulties in coordination arising from un-certainty, In one State (Oregon), a Title III offi-cial said his program occasionally makes useof TAA benefits, but he does not generally fa-vor the longer term training TAA provides be-cause “it is tougher for workers to return towork and they grow reliant on UI. ” For this

2GS13As operate JTPA Title 11A employment and training pro-grams for low-income workers. At the discretion of the Gover-nor, they may also be put in charge of Title I I I programs.

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and other reasons (uncertainty of funding, de-lays in certification), coordination in Oregonis limited. Some States have been confrontedfor the first time with large numbers of dis-placed workers. In Alaska, which now has thou-sands of displaced oil and timber workers, aTitle 111 official said:

I only just found out about TAA. There wasno real need for it until the bottom droppedout of the State’s economy.

In the few States that make no effort at co-ordination, the reason is usually that they havehad very few certified workers. There areStates, however, that have a large number ofTAA-certified workers and receive substantialTAA funds but operate the two programs asquite separate entities. For example, Califor-nia officials saw no reason to combine the pro-grams since they consider that Title 111 servesless skilled workers—many of them Hispanicsand Asians who do not speak English andwould require remedial education before re-training—while TAA serves workers with along work history who usually do not requireretraining but simply want benefits and a newjob. The separation of TAA and Title III serv-ices extends to the local project level. In SantaClara Valley, which has experienced the lossof tens of thousands of jobs in semiconductorand computer manufacture since 1985, man-agers of Title III were unaware, or barely aware,of TAA benefits, and reported that they had nolinkage at the local level with TAA serviceproviders.

Eleven of the States were able to achieve somereal integration of TAA and Title III. Massa-chusetts is a leader. From the top managers ofthe State’s Industrial Services Program, whichdirects both displaced worker services and as-sistance to firms that are in trouble, to the staffof local displaced worker projects, everyone isaware of the possibilities of combining bene-fits from Title III, TAA, vocational and adulteducation programs, and the State’s own dis-placed worker program. The State’s directorof displaced worker services said: “TAA is theonly way we’ve been able to make the moneygo far enough. ” Box B describes how coordi-nation works in Massachusetts.

The States that work around the uncertain-ties in TAA and integrate it with Title III serv-ices share a common approach. All are crea-tive in looking for the best features in eachprogram—and in other programs as well, suchas vocational and adult education—and com-bining them for the benefit of individual work-ers, Many of them foster coordination at thelocal or project level by requiring serviceproviders to list every source of funding avail-able to the project.

In integrated programs, workers are usuallysent to Title III projects for assessment andcounseling, job search programs, on-the-jobtraining (OJT), remedial education, and—untilTAA funds come through—classroom training.Title III can also pay for child care for peoplein training; TAA cannot, For eligible workers,TAA is reserved for long-term classroom train-ing, the costs of transportation for training out-side the normal commuting area, and out-of-area job search and relocation expenses. Anumber of the activities usually provided by Ti-tle III projects can be offered under TAA (on-the-job training, for instance) but the Title IIIservice providers usually have more staff andadministrative funds to plan and arrange forsuch services, and they can usually start sooner.Under Labor Department regulations, remedialeducation is defined as a supportive service,so that costs usually have to be covered byadministrative funds (no one reported doingthat). The Labor Department has ruled that TAAtraining funds can pay for remedial educationwhen it is preparation for a vocational skillstraining course, and a few States, such as Mas-sachusetts, do so. Title III projects can offerremedial education as training, independently.30

A near-universal feature of integrated pro-grams is the States’ aggressiveness in urgingunions, companies, or a trio of workers to pe-tition for TAA. In Texas, for example, the State

300TA found in its assessment of mrorkrr (11s1)1,]( (?n](:nt ([J .S.(;ongress. Office of Technology Assessment, 7’echrlo/og.t ar~dStructura] L~nernplo~rment, op. cit. ( 1986)) that remedial e(luca-tion is largel~’ neglected in Title I I I programs, Howe\’er, this i~not uni~’ersal: some States take ad~antage of the “1’itle I I I pro-gram to offer ki’ell-planned remedial education courses in an at-tracti~c setting. Nlan}’ of these States ar(’ the same that do anoutstanding job of coordinating TAA an(l Title 111.

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Title 111 program has a coordination agreementwith the Texas Employment Commission, bywhich Title III pays salaries of EC staff mem-bers to go out and actively get TAA petitionsstarted. The State’s rapid response team keepsan eye on UI claims, and whenever the teamnotes a big jump in claims, it targets the areaand alerts the Employment Commission. If thelayoffs are due to import competition, eitherEC or Title III staff make sure that someone—usually the union or the company personneldirector—files. If the company refuses and thereis no union, they go back to UI records and findthree workers who were laid off from the com-pany, encouraging them to file. The systemworks. In the 9 months before the agreementwas signed, Texas had only 28 applications forTAA; in 6 months afterwards, 256 petitionswere sent forward. According to a Title III offi-cial, of all the resources available to displacedworkers including Title III and vocational edu-cation, TAA is a major contributor,

Other than sending a letter to Governors urg-ing coordination between the Title 111 and JTPAprograms, the Department of Labor has gener-ally not done much to actively promote it, Anexception to this is the Region V office of theDepartment of Labor, located in Chicago, Theoffice holds quarterly roundtable meetings ofemployment security agencies, TAA offices,and JTPA in the six Midwestern States the re-gion includes (Illinois, Indiana, Michigan, Min-nesota, Wisconsin, and Ohio). Discussion of thepotential for coordinating TAA and Title III,and examples of what to do and what not todo, are leading topics at the roundtables. Sev-eral TAA and Title III officials in the regionpraised the roundtable discussions. One State(Wisconsin) said, “The roundtables have broughtus [TAA and Title III) together; if not for that,we’d be much further behind, ” The regionaloffice also fields questions about the programson a daily basis and, according to the State offi-cials surveyed, dispenses “excellent informa-tion.” Four of the six States in this region haveachieved some real integration of TAA and Ti-tle III services, and the other two are makingprogress,

Other regions have not followed suit. RegionVI, in Dallas, held one meeting at the requestof Texas officials, and Region X also held ameeting for the Pacific Northwest States. OneState official (Texas) specifically commentedthat the coordination problems with Title’ IIIand TAA are at the national level, in the De-partment of Labor. This official offered the ex-ample that, in conducting TAA training for theEmployment Service, the regional office of theLabor Department said Title 111 agencies wouldprovide the job search programs required forworkers receiving TRAs—without any idea thatfunds for Title III that year had been cut in half.

When OTA asked the States what changesthey would like to see in the TAA program, theone most often put forward (in 19 States) wasa shift toward more unified services for all dis-placed workers, whether or not the workers aretrade-affected. In a unified program, open toall displaced workers, the nettlesome problemsof delays in certification and arbitrary distinc-tions among workers on whether they are trade-affected would disappear, Most of the peoplewho suggested this change insisted, however,that the best features of both TAA and Title IIIbe kept. For TAA, the best features are seenas longer term, better quality and higher costtraining combined with extended income sup-port. For Title III, they are State responsibilityfor designing the program and control overmost of the funds; a broader range of services,including remedial education; and the flexibil-ity to move in and provide adjustment servicesbefore layoff.

It should be noted that the “best features” ofTAA and Title 111 programs represent poten-tial in some cases, not actuality. The superi-ority of TAA training was greatly diminishedin early 1987 because funds had nearly run out.Not many States provide remedial educationin Title III projects, and an effective rapid re-sponse to plant closings and mass layoffs doesnot yet exist in most States. Title III allowsStates to provide these services, however, anda few are effectively doing so.

TRADE ADJUSTMENT ASSISTANCE FOR FIRMS AND INDUSTRIES: ISSUES

The main issue concerning the TAA programfor firms is whether it should exist. The Rea-gan Administration maintains that it shouldnot, arguing that it is natural and inevitable formany firms to succumb to competition, foreignas well as domestic, and that the governmenthas no business trying to save them. Congress,in reauthorizing TAA for firms through 1991,in effect made the judgment that the programis worthwhile, that given good technical assis-tance, some firms weakened by import compe-tition can revive and continue to provide jobsand economic benefits to their communities.Since the reauthorization, however, CommerceDepartment administration of the program hashobbled its ability to offer technical assistance.

Aside from the current crisis in programadministration, a continuing question iswhether the certification requirements forfirms—a showing that the firm’s sales or pro-duction have declined, as a result of importcompetition—make sense. Should the programbe restricted to firms that are demonstrably introuble already? Or should firms throughout atrade-affected industry be eligible for TAA serv-ices, thus making it possible to offer assistanceto firms with a better chance of survival—butalso greatly enlarging the number of potentialclients. This question, though not so pressingas the question of the program’s continued ex-istence, has some broad implications. In recentyears the suggestion has been made, by OTAand others, that an industrial extension serv-ice of some kind might contribute to competi-tiveness of American industry.1 The idea is for

*U, S. Congress, Office of Technology Assessment, IndustryTechnology, and Employment Program, Det’elopment and Diffo-sion of Commercial Technologies.’ Should the Federal Go\rern -ment Redefine Its Ro~e? staff memorandum, March 1984; seealso H. R. 4361, the Advanced ‘1’echnology Foundation Act, a billproposed in the 98th Congress.

a government-supported program that wouldhelp small and medium-sized manufacturingfirms learn about and apply up-to-date technol-ogies and management practice. Several Stateshave technical assistance programs along thisline,

An assessment of the possibilities of an in-dustrial extension service is beyond the scopeof this special report, which is focused on theTrade Adjustment Assistance programs. How-ever, the experience with TAA for firms doessuggest, roughly at least, how a broader pro-gram of technical assistance to industry mightwork.

How TAA for Firms Operates

Before getting to the issue of survival of TAAfor firms, let us first take a brief look at howthe program operates —or how it operated be-fore the crippling interruptions of authority andfunding freezes that have occurred repeatedlysince December 1985. Two features of the pro-gram stand out. First, the technical assistancethe program offers is in-depth; typically, clientfirms receive 60 to 80 days of expert assistancein diagnosing competitive problems and devel-oping ways to solve them. Second, the programtakes time. The assistance itself is time-consum-ing because it is intensive; and the Departmentof Commerce approvals at three steps in theprocess, though usually done fairly expedi-tiously, add more time.

Twelve Trade Adjustment Assistance Centers(TAACs) operate the program through grantsfrom the Department of Commerce; the grantshave customarily been for 12 months (from De-cember 1985 through May 1987 the TAACs re-ceived grants for no more than a few monthsat a time, and they are operated on short timeextensions with limited funds). Annual grantsrange from about $700,000 to $2 million, and

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average a little more than $1 million each, z TheTAACs’ first step is to help firms prepare peti-tions for certification, claiming that sales andproduction declines are due to competitionfrom imported products; weed out the clientswho obviously cannot substantiate the claim;and send the petitions on to the Commerce De-partment for a decision. The department veri-fies the claims, usually by telephoning the firm’scustomers, and decides whether the firm iseligible. If many petitions are being submitted,these decisions may take longer than the 60 daysthe law allows, but such delays have generallybeen shorter than in the TAA program forworkers.

In interviews with OTA, officials of oneTAAC said that any firm coming to it is allowedto apply for certification, so long as the firmappears to meet the criteria of declining salesor production due to imports. The other TAACsdo some informal screening. Although they ac-cept the principle that any trade-affected firmhas a claim on assistance, they do sometimesdiscourage clients from preparing petitions ifthey see little chance that the firm can recover.In making this judgment, the TAACs put great-est emphasis on management’s flexibility andwillingness to make changes, If the client seemsto be looking only for a quick financial fix, forexample, the TAAC counselor may emphasizethat the firm will have to bear at least 25 per-cent of the cost of technical assistance, Or ifa client appears to be on the brink of insolvency,

~rl’h i 5 description of how the program operates comes frominter~’ie~t’s with and materials provided by officials of the De-partment of [;[)mrnercc and the TAACS, For this special report,OTA interviewed policymaking officials and staff members ofthe office of Trade Adjustment Assistance (OTAA), the agen(;~in the Commerce Department which oversees TAA for firms,OTA also interviewed by telephone and in two site visits thedirectors and staff members of 11 of the 12 TAACS. The onlyTAAC not represented in the telephone survey was the Mid-America TAAC, located in St. Louis, which had just been cre-ated with final approval pending in the Department of Commerce,The Mid-America TAAC was previously located in Little Rock,AR, but it ceased operations in 1986. TAACS sur~eyed by tele-phone were ‘New York State, Binghamton, NY; Nletro New }’ork,New York, NY; New Jersey, Trenton, NJ; hlid-Atlantic, Phila-delphia, PA; Great Lakes, Anne Arbor, X41; hlid-~t’est, Chicago,IL; Rocky Mountain, Boulder, CO; Northwest, Seattle, WA; andWf;stern, I.(),s Ange]e~, CA, The TAACs i’isited b}’ OrrA staff lt’ereNe~ England, Boston, MA, and Southeastern, Atlanta, GA.

the TAAC may point out that recovery meas-ures will be slow and long-term. In this way,the decision not to proceed is generally mutual;TAACs do not simply turn away clients. At leastone TAAC (Western) does require that beforeit gets involved with a firm, the managementmust already have made some changes in re-sponse to problems, The idea is that a firm thatinitiates its own adjustment shows a commit-ment to change, and also improves its abilityto get financing to carry out an adjustment plan,

Once a firm’s petition is approved, the TAACconducts a diagnostic survey, which includesa scrutiny of the firm’s financial situation, itssystem of management information and costcontrols, its product development, marketingplans and sales efforts, as well as its operationson the shop floor, To stay in the program a firmmust be willing to open its books. The diagnos-tic study is a critical piece of the program, sinceit determines the direction the adjustment planwill take. Usually, the TAAC’s technical staffdoes the diagnostic study; most TAACs, whenfully staffed, have people with training and ex-perience in industrial engineering, finance, andmarketing. Sometimes, for a client in an un-usual or highly technical business, the TAACmay hire a consultant for the diagnostic study.TAAC and the firm together formulate an ad-justment plan based on the diagnosis, specify-ing what the firm needs for recovery and thekind of technical assistance it will ask for. Thestudy and plan generally take 6 to 8 weeks tocomplete, An adjustment proposal must be sentto the Department of Commerce for approval,which usually takes about 3 weeks.

The next step is to find contractors who canprovide the technical assistance that the adjust-ment plan calls for. The firm may need a mar-ket survey, to determine whether a new prod-uct it is planning will find any customers. Itmay may need engineering help in designinga new product. It may need to install and learnhow to use a management information systemthat will identify production bottlenecks thatraise costs, It may need a manufacturing engi-neer to look over and redesign shop floor oper-ations. Technical assistance may cover any ofthese things; but it cannot cover the purchase

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of equipment or the provision of working cap-ital. For technical assistance that costs an aver-age of $75,000, firms must pay at least 25 per-cent; the firm’s share rises with increases incost beyond that level. Usually, the TAACsbring in a consultant with specialized skills toprovide technical assistance; they are chosenby competitive bids, and their contracts mustbe approved by the Department of Commerce.

Assuming things go smoothly and there areno hitches, the process outlined here takes atleast 6 to 8 months. Many firms meanwhile takesteps on their own to follow suggestions madein the diagnostic study and adjustment plan.Others take longer than a few months to mullover the TAAC’s diagnosis and recommenda-tions, and decide whether to proceed. In anycase, they must have enough strength to sur-vive several months at least before getting theadjustment assistance that has been designedto meet their needs. Boxes C and D describethe experiences of a New England clockmakerand a couple of garment manufacturers in theSouth with technical assistance provided byTAACs.

Firms served by the TAACs are relativelysmall. In the last 2 years the TAACs were infull operation (fiscal years 1984 and 1985), theTAACs each added an average of about 30 cer-tified firms to their rolls, and had adjustmentassistance plans approved for 15 firms each,on average (see table 5). The expenditure perfirm certified works out to about $37,500 peryear; adjustment assistance, if carried to com-pletion, generally costs about $75,000 perfirm—not enough to do much for a large firmsThe typical TAAC client has sales averagingabout $5 to $10 million per year and 100 to 150employees; although quite a few smaller firms,with sales of $1 to $2 million, are also served.Service to firms with sales more than about $30million per year is unusual. All the firms servedare in manufacturing, since TAA does not coverservice industries.

sInformation supplied by the TAACS.

No other Federal program—probably no Stateor local program either—operates quite as TAAdoes to provide sustained, sophisticated tech-nical assistance to small and medium-sizedmanufacturers. The Economic DevelopmentAdministration (EDA) gives grants of about $7million per year to universities, local govern-ments, or nonprofit organizations for severalpurposes related to economic development inareas of high unemployment and poverty. Ac-tivities include technical assistance to local bus-inesses and programs to help local governmentslearn about economic development. The De-partment of Defense offers assistance to smallcompanies, usually subcontractors, who lackthe sophisticated equipment needed to meetmilitary specifications.

The Small Business Administration offersgrants to Small Business Development Centers,which are operated by the States and offer coun-seling and training to small businesses. Coun-seling, given to 72,000 firms in fiscal year 1986,helps owners deal with specific difficulties thatarise in their day-to-day operations. Training,provided to nearly 260,000 firms in 1986, isgiven in seminars or classes that teach basicbusiness skills such as marketing or cost con-trol, The average time spent with each firm is7 to 10 hours. Most of the firms are small, somewith as few as one or two employees, and nearlyall are in services, mainly retail trade. TheSBDCs concentrate on firms that cannot affordto pay someone for advice. The counseling andtraining they provide is free; often volunteersfrom the Service Corps of Retired Executivesoffer the assistance. Funding for the programin fiscal year 1986 was $35 million.

A number of States offer technical assistanceto manufacturing firms, often as part of theireconomic development programs, OTA has notassessed these programs, but from a brief lookit appears that many provide services that aremuch shorter in duration than those the TAACsprovide. For example, the highly respected In-dustrial Extension Service of the Georgia TechResearch Institute usually provides 3 to 5 days’service to its clients, with the limit rising to 10days for firms that are expected to provide newjobs. The Georgia Tech program is one of the

5 5

Box C.—New Life for a Ninety-Year-OId: TM Helps New England Clock Firm Survive

The Chelsea Clock Co., founded in Chelsea, MA, in 1897, is the only one of the old New Englandclockmakers left. Others still have their names on the clock cases, but the innards are made in Eu-rope or Japan. Chelsea Clock, housed in its 19th century brick building in one of the old industrialtowns ringing Boston, makes fine timepieces from scratch and guarantees them for a lifetime-theclock’s lifetime, which means as long as anyone wants to keep it.

Until a few years ago, the company made clocks the traditional way with spring-wound move-ments, despite the quartz technology revolution. Yachtsmen, clock collectors, and companies look-ing for a handsome gift for retiring employees remained steady customers for a timepiece handmadeof brass and fitted with gold-plated works that you could watch through the back of the case. Butin the early 1980s, the new technology began to catch up with the company. Customers started tobalk at paying several hundreds or thousands of dollars for a thing of beauty that didn’t keep timeas well as a $10 clock from the corner drugstore.

Richard Leavitt, president of Chelsea Clock, is a former accountant who bought the companyin 1978. By 1982, he realized that, even though dollar sales were holding up, the number of clockssold every year was sliding fast, from 14,000 in 1980 to 9,000 in 1983. Twenty of the firm’s 70 em-ployees had to be laid off. First Leavitt tried putting the standard plastic quartz movement into aChelsea clock, but he didn’t like it and neither did his clock-fancier customers. He knew his companywas best off holding on to the fine clock part of the market, where sales of 15,000 to 20,000 clocksa year would be enough to keep his small firm prosperous but not enough to tempt giants like Seikointo competing, probably with a good looking but lower cost clock. He also knew he wanted a fineelectronic movement for the Chelsea clock. But the technical expertise to design it was beyond hismeans to buy (he had already mortgaged his house to put money into the company), and banks don’treadily lend money to buy designs. They can’t foreclose on a design.

Leavitt learned about the Federal Trade Adjustment Assistance program, which provides techni-cal assistance to firms hurt by imports, just as he was concentrating on how to raise the money fordeveloping a high-quality quartz movement. The New England Trade Adjustment Assistance Center(TAAC) helped to diagnose the firm’s problems and write a proposal, which the Department of Com-merce approved, for a recovery plan. The project included a market survey as well as developmentof the quartz movement. The Cambridge consulting firm Arthur D. Little Inc. did both pieces of work,and Federal grant money paid two-thirds of the $100,000 cost; the company paid the rest. When themarket study found that customers would buy a high-priced clock with brass parts-but not plasticparts-the design team created a movement with gold-plated brass plates, gear wheels that are cutnot stamped, and synthetic jewels at points of wear.

So far, the plan is succeeding. The company’s sales and profits have risen, and Leavitt plans anaggressive sales effort to add more fine gift shops and jewelry stores to his customer list. Most butnot all of the work is done at the plant; cases for the top-of-the-line clocks are imported from Switzer-land, but Leavitt plans to bring that work home. The shop already makes its own cases for ship’sclocks, which have long been a staple of the Chelsea business. The plant has kept its 50 workers,many of whom are 20-year veterans, and include precision assemblers, machinists, inspectors andtesters, and a master clockmaker.

Leavitt gives high marks to the New England TAAC for helping to make the company profitableand competitive. He says he would have done the project eventually without the TAA help if he’dhad to, but at much greater risk. The cost of the project was as much as the firm’s entire profits ina good year. Without help, Leavitt would have been obliged to bet the company, and if the bet didn’tpay off soon enough, Chelsea Clock would have become a hollow company.

The other New England clockmakers have already taken that path. “We could have followed thepack,” Leavitt said, “and used the Chelsea name to put on products we import. We chose the moredifficult route, keeping responsibility for design and manufacture. That translates into jobs here ratherthan to people in other countries.”

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Box D.-Made in the USA: Trade Adjustment Assistance for Apparel Manufacturers

IntroductionGarment making is still a very large industry

in the United States, despite increasing imports.In 1986, employment in the industry was 1.1 mil-lion; this compares to 815,000 in the auto indus-try and 266,000 in basic steel. Certainly, importshave made inroads. One-quarter of the amountAmericans spend for apparel and other textileproducts goes for imports, Despite the highlystructured quota protection under the MultifiberArrangement, imports rose to a new high in 1986–$17.8 billion. This compares to $2,3 billion(about $5.3 billion in 1986 dollars) in 1973. Andemployment is down from its 1973 peak of 1.4million.

Yet in some ways apparel is holding its own.Employment and output in steel mills, for exam-ple, are both less than half of what they were in1973. Jobs in apparel have declined only about20 percent, and output in constant dollars hasrisen over 9 percent. Granted, jobs in apparel arepoorly paid compared to the average manufac-turing wage ($5.86 per hour vs. $9.83), and aretaken mostly by women and minorities. But tomany of the people holding them, these are thebest jobs available anywhere near home,

The Southeastern TAAC, located in the Geor-gia Tech Research Institute in Atlanta, special-izes in technical assistance for small andmedium-sized apparel and textile firms: Muchof rural Georgia and the Carolinas is economi-cally dependent on textiles and apparel. A gen-eration ago, when these industries were leavingNew England for the lower wage South, theSoutheastern States made energetic efforts to at-tract them, especially to the rural counties thatwere losing tens of thousands of farm jobs withthe rapid mechanization of agriculture. Now,Georgia and the Carolinas are trying to save theseindustries from lower wage competition in Asia,Mexico, and the Caribbean.

Aiken industriesThe TAAC’s part in all this is to help firms like

Aiken Industries, a family-owned and run apparel plant in Aiken, South Carolina, survive andprosper. Cary Friedman, the plant manager andson of the founder, heard about the TAAC’s serv-

ices through an industry newsletter in 1984, ata time when the plant was losing sales and prof-its were declining. Friedman knew the firm hadto change to survive, but he didn’t know exactlywhat to change, nor was the firm doing wellenough to pay for both technical advice and anynew hardware that might be needed. The TAACsent its apparel expert, a former private consul-tant to the apparel industry, to diagnose the firm’stroubles and work with Friedman on an adjust-ment plan.

Aiken Industries is atypical small (135 employ-ees] “cut-and-sew” operation. It receives fabricfrom a larger apparel firm and returns the fin-ished goods; essentially, it is selling labor, includ-ing managerial labor. A firm like this can surviveby doing quality work, accepting fast turnaroundorders (such as re-orders of popular items) thatwould take too long for foreign competitors tofill, and squeezing out unnecessary costs. TheTAAC’s contribution was to help Aiken Indus-tries control costs. The diagnosis showed theneed for a management information system forcost analysis and control. The company spent$20,000 for a computer and software, and theTAAC expert taught Friedman how to interpretthe data to pinpoint areas of excess labor cost.(“Excess cost” is a term of art in the apparel in-dustry; there is always some excess cost, but well-run firms reduce it to a minimum,) Georgia TechResearch Institute trainers, available through theTAAC but paid for by the company, taught firstline supervisors how to reduce costs in the areasidentified-for example, by seeing that machinesare repaired quickly if there is a breakdown.

When the project started, the TAAC expert esti-mated that Aiken’s excess costs could be cut inhaIf. By early 1987, the company had achieved60 percent of that by following the adjustmentplan and paying for the improvements it identi-fied. The last piece of work was yet to be done,however. The plan called for an engineering con-sultant to improve shop floor operations. Thiswas the technical assistance the TAAC promisedto help pay for; it would cost $90,00(), of whichthe firm would contribute one-third. But theTAAC was Unable to pay f@ technical assistance,because it had not received any fiscal year 1987funds from the Department of Commerce, and

57

was authorized to stay in business for only 1 or2 months at a time.1 The Friedman family, Ai-ken’s owners, felt that they could afford to risk$30,000, but not $90,000, for the engineering con-sultant.

The failure to come through with funds for theconsultant was Friedman’s only criticism of theTAA program. At this point, he said, “For thegovernment not to help me be more competitivewould be crazy. ” Otherwise, he had nothing butpraise for the program, and freely gave it creditfor the firm’s turnaround.

Burke Industries

An apparel firm that completed its TAA adjust-ment plan with successful results is Burke Indus-tries of Waynesboro, Georgia. Jack Steinberg,Burke’s owner and manager, has been in busi-ness in Waynesboro for over 25 years and nowspecializes in denim jackets, an exacting itemthat requires over 40 operations. Burke has alsorecently won a contract for military clothing, andexpects to add 100 more people to its work force(early in 1987) of 160.

Despite the firm’s experience and good repu-tation, Burke nearly went under in 1982-83, whenthe combined effects of the recession and risingimports knocked many American apparel firmsout of business. Steinberg heard about the TAACat the industry’s annual meeting and fair (theBobbin Show in Atlanta). Just an initial talk witha TAAC expert gave him some ideas, he said. Hepulled the firm through its immediate crisis byselling finished garments to retailers.

For the longer haul, the TAAC made severalmajor contributions. At its low point, the firmwas strapped for cash. The TAAC expert helpedSteinberg devise a financial program, and wentwith him to the local development board which,after looking over the plan to improve the com-

IIn March 1987, the Southeastern TAAC received about $100,000in a grant from fiscal year 1987 funds, and a time extension throughJune 15. In earlier years, this TMC received about $1 million fora 12-month grant. In May, the Commerce Department requested aproposal for a Iz-month grant.

pany’s prospects, approved a loan. As it did forAiken Industries, the TAAC advised Burke toinstall a computerized management informationsystem, and showed him how to use it. Thesystem has paid off in identifying areas of excesscost. The TAAC also advised Burke to use a mod-ified system of in-process statistical quality con-trol, in which inspectors examine a sample ofgarments before the sewing operations are com-pleted. Burke inspectors also look at every fin-ished garment before it goes out. The in-line sam-pling combined with the final audit have reduceddefects enough that customer rejections havegone down from two or three shipments a yearto zero. In addition, Burke, like Aiken, got train-ing for its first-line supervisors from GeorgiaTech experts.

The most notable change due to the TAAC’sadvice resulted from an engineering consultant’ssuggestions on re-arranging the cutting room. Heproposed to get rid of stored fabric that no onewas using, to use fewer cutting tables and makethem uniform in size and shape, and improve thetraffic pattern. These seemingly simple sugges-tions allowed Steinberg to reduce his staff in thecutting room from 20 to 8.

Steinberg observed that many of the TAAC sug-gestions, once they were made, seemed obvious.But like most small businessmen, he was so busywith a multitude of tasks that he never had achance to step back and determine what changeshe needed to make, and which to do first. He gavethe TAAC full credit, not only for providing tech-nical expertise that he lacked (how to use thecomputerized management information system),but also for identifying the most urgent actionsthe company had to take. “The improvementsthey helped us make were really and truly dra-matic,” Steinberg said.

Burke Industries is now offered five times asmuch business as it can handle, Steinberg says,The firm has recovered strongly and its outlookis good, at least for the time. “The advantagewe’ve got,” Steinberg says, “is that we can de-liver on time. To get deliveries from overseas,you have to order a year ahead of time. If we everlose that edge, we’ve lost it.” While he has it, thefirm employs 150 to 250 people a year, and is amainstay of the local economy.

58

most experienced in the country, It was estab-lished in 1960, now has 12 centers staffed byengineers and other professionals throughoutthe State of Georgia, and is funded by the Stateat $2 million per year.

TAA for firms began with a strong emphasison loans and loan guarantees, but that part ofthe program is now defunct. TAA financialassistance was at its height at the end of the1970s, reaching $70 million in 1980. Under theReagan Administration, loans and loan guaran-tees were scaled back sharply, declining to$900,000 and just two firms in 1986, the lastyear TAA financial assistance was offered.When requirements for loans were not verystringent, as was apparently the case in the late1970s, numerous firms qualified but defaultrates were subsequently high. When require-ments were tightened, the number of firms get-ting loans or guarantees dropped sharply. Toqualify, firms had to show evidence that theycould pay back the loan, and at the same timeshow they could not get private financing—adifficult combination. Also, in the last 2 or 3years of the program, loan approvals met withlong delays—usually more than a year—in theCommerce Department; Commerce officialsthemselves describe the time it took for ap-provals as “interminable. ”

TAA financial assistance to firms has fewdefenders today. Because of the delays and thestringent requirements for firms to qualify, mostof the TAAC officials interviewed by OTA didnot regret the loss of the loan program. Sev-eral said they considered technical assistancemore efficient and valuable in any case; if firmsneed money to carry out their adjustment plans—as many do—the very fact that they have anadjustment plan makes them better prospectsfor private loans. Also, loans or guarantees maybe available from other Federal sources (suchas the Small Business Administration), or Stateor local agencies. For example, one Georgia gar-ment manufacturer who had previously had noluck with a community economic developmentagency got a loan when the TAAC counseloraccompanied him to the agency and explainedthe recovery plan. Three years later, the com-pany was in good shape, and expanding. An

official of another TAAC (New England) saidthat most firms served by his TAAC need man-agement changes, not a quick financial fix, forlong-term survival; the main purpose the loanprogram served, he said, was to draw peoplewho could use help into the technical assistanceprogram.

Should TAA for Firms Continue?

The Administration’s arguments against con-tinuing TAA for firms are that it does not work,and is not justifiable anyway, because firms in-jured by imports do not merit any special helpbeyond what is available to other firms. Offi-cials in charge of the program add that it is hardin any case to draw the line between injurycaused by increased imports and plain inade-quacy of management. It is also argued that,in a dynamic society operating under a freetrade philosophy, TAA is often directed to firmsin industries that are dying a natural death.TAA is “fighting the inevitable.”4

Proponents of the program are not very orga-nized or visible, but they include business peo-ple who have received technical assistance.Many individual firms have high praise for theprogram, and credit it with their improvementsin sales and profits. s Those who favor TAA forfirms believe it works—not in every case, pos-sibly not in the majority of cases—but oftenenough, and with enough benefits to the pub-lic as well as to the firms concerned, to justifythe program. The equity argument—that spe-cial help is due those who are injured by theNation’s free trade policies—does not apply inquite the same way to firms as to workers.

AThis argument is emphasized in U. S, Department ofCommerce, Office of Inspector General, International TradeAdministration Trade Adjustment Assistance: No Cure forImport-Injured Firms (Washington, DC: Department ofCommerce, 1985), see especially pp. 12-13.

sSee, for example, U,S. Congress, House Committee on Waysand Means, Subcommittee on Trade, Hearings: Trade Adjust-ment Assistance for Firms, April 6, 1985—Atlanta, GA; TradeAdjustment Assistance for Workers, ]une 10, 1985–Lorain, 13H,99th Cong,, Ist sess. (Washington, DC: U.S. Government Print-ing Office, 1985); also, five client firms visited by OTA staff inDecember 1986 and January 1987 said they knew of no otherprogram providing the high quality, sustained technical assis-tance given by the TAACS, and attributed their improved per-formance to TAAC assistance.

5 9

Workers must earn a living; firms don’t neces-sarily have to stay in business. Yet, firms areowned and managed by people, and employpeople; those people may be thought to havea claim on the government for help if govern-ment policies do them economic harm. More-over, if a government program helps to savea business, that may well be a better outcomethan trying to adjust to the loss of all the jobsthat go with it if a business fails.

Whether the TAA program for firms worksis a central question. Two recent evaluationsof the TAA program for firms come to quitedifferent conclusions. A report by the Officeof Inspector General in the Department ofCommerce, issued in March 1985, concludedthat the TAA program successfully aided only3.6 percent of clients requesting assistance and13 percent of those completing adjustmentplans. The report said that although someaspects of the assistance process—such astimeliness—could be improved, “intractable na-tional and international economic and marketconditions [e. g., low labor costs and subsidiesto industry in other countries, the strength ofthe dollar] prevent the program’s success.”6 Thereport praised TAAC personnel as dedicatedand well-qualified, but said “the adverse envi-ronment in which the program must operateremains unyielding and overwhelming.”7

A May 1985 report prepared for the Depart-ment of Commerce by a private consultant firm,HCR, found that 35 percent of firms receivingtechnical assistance from the TAA programwere better off than they were before enteringthe program—and better off than the averagefirm of their own size and kind; 79 percent ofall the firms sampled were still in business. a

Because of congressional interest in deter-mining whether TAA for firms is worthwhile,

‘U. S. L)epa rt m ent of Commerce, Office of Inspector Genera],op. cit., p. 12.

71 bicl,, p. 14.8HCR, Evaluation of the Adjustment of Firms Assisted b~ the

Trade Adjustment Assistance Program: Economic Experien[:eof ~lient Firms Since 1981, report prepared for the U.S. Depart-ment of Commerce, Office of Trade Ac] justment Assistance(Washington, DC: 1985),

and because the experience with TAA may bea useful guide for other industrial extensionservice programs, a close look at the methodsand results of the two studies is in order. Sev-eral factors help to explain the wide divergencein the results, and to cast substantial uncer-tainty over both, The interpretation of data, defi-nitions of success, and time period chosen (the1982-83 recession) in the Inspector General re-port all tend toward pessimistic results; the re-port very likely understates the program’s suc-cesses. The HCR study lacks the detaileddescriptions of individual firms that appear inthe Inspector General report, and its data havebeen criticized by the Department of Commerceas inaccurate, erring on the optimistic side.

The Inspector General Study

The Inspector General report first looked atthe 370 firms certified in 1982 and 1983 at sixTAACs (Midwest, Mid-Atlantic, New Jersey,New England, Southeastern, and Metro NewYork), and found that 269, or 73 percent,dropped out of the program after being certi-fied but before reaching the phase of imple-menting an adjustment plan (generally, beforean adjustment proposal was written). Select-ing the Midwest TAAC, with a 74 percent drop-out rate, as typical, the report interviewed orreviewed files of the 65 firms certified at thatTAAC over the 2 years to discover the reasonfor the “tremendous percentage” of firms drop-ping out, Summing up the reasons 47 firms gavefor dropping out, the report classified 33 per-cent as “dissatisfaction” with the program, 24percent as “disabling financial condition s,” and15 percent as miscellaneous.

Yet the client responses, as summarized inthe report, could be interpreted quite differ-ently, In many cases, it appears that “dissatis-faction with the program” amounted to disap-pointment that TAA would not provide a quickloan, or that the firm had to pay 25 percent ofthe cost of technical assistance, or that the pro-gram did not provide some kind of trade pro-tection. Thus, one might well interpret the re-sults as showing that the TAAC was weedingout firms who were interested only in findinga source of ready money, and were not willing

6 0

and able to make management changes thatwould improve their chances of surviving. Fora program with limited resources and the goalof providing intensive assistance, some kindof triage is certainly necessary. The TAACmight be criticized for failing to make clear thenature of the program before sending on thepetitions for certification; perhaps more firmscould be weeded out at an earlier stage, beforethey are certified. It should be kept in mind,however, that 1982 and 1983 were the years ofthe deepest recession in 50 years; it is likelythat more firms than usual were unable to payanything for an adjustment program.

A different kind of complaint, appearing quiteoften in these cases, was that TAA help wastoo slow in coming. The average time for com-pleting adjustment plans ranged from a low of1 year to a high of more than 6 years, with anaverage of 2 years 8 months. Some of this de-lay is unavoidable, arising from the nature ofassistance in the TAA program (see the discus-sion below), but some might be avoided by im-proving TAA procedures.

The most serious charge against the TAA pro-gram in the Inspector General report is that itssuccess rate was a “dismal” 3.6 percent. Thisextremely low figure was produced by exam-ining 38 firms in four TAACs that completedimplementation of adjustment plans in 1982and 1983 and concluding that five, or 13 per-cent, adjusted successfully due to TAA efforts.This percentage was then applied to the 101firms remaining in the programs of the sixTAACs, yielding 13 cases expected to be suc-cessful. The 13 cases were then divided by 370(the number of firms certifed by the six TAACsin 1982 and 1983), producing a figure of 3,6 per-cent, which was termed the success rate. Thisputs the success rate in a very unfavorable light.It implies that every firm that is certified shouldreceive service, and that success must be judgedby the ability of the TAACs to help all of thefirms certified, whether or not they receivedservice.

Another measure of success is the percent-age of cases coming to completion that suc-ceeded due to the TAAC's efforts. That figure

is 5 of 38, or 13 percent, according to the re-port. Another 4 cases were judged successes,but not on account of the TAAC’s efforts; thus9 firms, or 24 percent, adjusted satisfactorily.A firm’s adjustment was defined as successfulif its sales, production, or employment stabi-lized or increased by the time the plan was com-pleted, This part of the report’s conclusion alsobears questioning.

first, it maybe difficult in some cases to pin-point just how much the TAAC had to do witha successful outcome. For example, one TAACadvised a firm producing wire that improvedmarketing would be a major solution to its prob-lems, recommended hiring five nationwidesales representatives, and helped the firmchoose them. The firm decided later to do with-out the salesmen and instead got a listing ina leading national industrial directory. Salesrose, and the firm’s position improved, but acompany spokesman gave no credit to theTAAC since he believed that success was en-tirely due to the directory listing. It might beconsidered that the TAAC deserved some credit,however, since it was the TAAC that identifieda national marketing effort as key to the firm’simprovement.

A second point is that the cases on which theInspector General report rested its conclusionswere completed in the deep 1982-83 recession.The large percentage of bankruptcies and busi-ness failures reported for the 38 firms the re-port examined was probably due at least in partto the dismal economic climate of the time.

Congressional hearings on the TAA programfor firms, held in 1985, suggest that the num-ber of successes found in the Inspector Gen-eral study was exceptionally small, possibly onaccount of the time frame chosen for the study.At hearings of the Subcommittee on Trade ofthe House Committee on Ways and Means inAtlanta, Georgia, on April 6, 1985, a muchlarger number of successful cases was reportedby two of the six TAACs included in the study.The Southeastern TAAC submitted a reportstating that 45 firms entering its program from1982 through 1984 had stabilized or improved

their situation by 1985.9 Several businessmenwhose firms got assistance from the Southeast-ern TAAC also testified that their situation hadimproved. In addition, the New Jersey TAACsubmitted a report on 16 firms entering its pro-gram between 1978 and 1983 (13 of them from1981 to 1983), detailing increases in sales a n demployment for all of them by 1984-85.10 Thesereports are not comparable with the results re-ported in the Inspector General study; m o s twere from the TAACs, not the firms, and mighthave been biased toward optimism, Also, a fol-lowup a year or two later might show that someof the improvements did not last. However, the61 firms reported as improved after workingwith these two TAACs greatly outnumber thefive successes credited to four TAACs (includ-ing the New Jersey TAAC) in the Inspector Gen-eral report. One difference may be that 1984-85 were much more prosperous years than1982-83.

Finally, any study that evaluates the successof a program must consider carefully what“success” means. This issue is discussed be-low, in relation to the HCR report as well a sthe report of the Inspector General.

The HCR Report

This report by a private consultant was com-missioned by the Commerce Department in1984 and completed the following year. Thestudy selected a random sample of 249 firmsfrom a total of 426 firms which had submitteda diagnostic survey or adjustment proposal be-tween June 1, 1981 and April 24, 1984. (HCRdid not include in the sample all firms that werecertified, since TAACs discourage firms inweak financial condition from seeking assis-tance.) Then, reports on the firms’ economiccircumstances were drawn from the TAAC filesor obtained from the firms themselves; usuallythe TAACs got in touch with the firms for in-formation, but in a few cases HRC made thecontact. Enough information was gathered o n

‘[J .S. Congress, House of Representatives, Subc om m ittec onTrade of the Committee on l$~ajs and Means, Hearings, op. c,it,,p, 97,

101 hid,, pp. 2fi-27

127 of the 249 firms in the sample to allow anevaluation of the firm’s degree of success i nadjusting by December 31, 1984, that is, 8months to 3% years after the firms took the firststep to get technical or financial assistance.

The HCR study used three criteria to indi-cate whether the firm. understood and heededthe TAAC’s advice, whether its economic situ-ation improved, and whether the progress wasdue to the TAAC’s intervention, or simply t ochanging economic fortunes in the firm’s in-dustry. The criteria for adjustment were thatthe

●

●

Ž

firm must have:

begun implementing a majority of the tasksspecified in its adjustment proposal;shown improvement in sales or profitabil-ity or an increase in employment afterTAAC assistance; andequaled or bettered the average perform-ance in sales or profit for similar firms(with approximately equal sales and in thesame four-digit SIC).

These criteria for success are more exactingthan those used in the report of the InspectorGeneral. Yet HCR found that 44 of 127 firmsassisted by the TAACs met all the criteria, andmany met some but not all three; over half in-creased sales, the report said. Of the 122 sam-ple firms for which no outcome data were avail-able, HCR estimated (on the basis of the Dun& Bradstreet Credit Rating Reference Book) that81 percent were still in business. This is closeto the survival rate (79 percent) reported forfirms that did have outcome data, and perhapsimplies that the outcomes for both groups mighthave been much the same.

The report’s results are clouded with uncer-tainty, however, HCR, unlike the Office of In-spector General, relied heavily on data in theTAACs’ files, or collected by the TAACs in in-terviews; in the 127 cases, HCR directly inter-viewed only 17 firms. Details on the extent ofadjustment—that is, a listing of individual firmsshowing what happened to the sales, profits,and employment of each—do not appear in thereport. Thus, the questions the Commerce De-partment raised about the accuracy of the data

62

could not be convincingly answered by mate-rial in the report,

Department officials were particularly skep-tical of the study’s finding that 10 of 15 firmsgetting Trade Act loans adjusted successfully;they thought this inconsistent with the fact thatthe default rate on TAA loans had tradition-ally been high. The Deputy Assistant Secretaryin charge of the TAA program ordered a staffreview of the data on firms getting loans andmeanwhile held up release of the HCR report.The staff review reported that 9 firms, not 15,got TAA loans during the period reviewed, andthat 4 firms instead of 9 adjusted successfully.The figures were not significant statistically be-cause the sample was so small. No further in-formation from the staff review was published,and no details on individual firms were given.

In authorizing the release of the HCR reportin 1986, the Deputy Assistant Secretary for TAAincluded as an appendix an exchange of let-ters on the data problem, His letter said that:

. . . a closer review of the forty-four firmswhich HCR has characterized as “adjusted”reveals that a number of them are in severefinancial difficulty .11

No details on the extent of financial difficulty,that is, a listing by individual firms of declinesin profits or sales, appeared in the letter or thea p p e n d i x .

Defining Success

The definition of success is obviously a criti-cal element in evaluating a program’s effects.For individual firms, the standard of successused in the Inspector General report—that thefirm must have increased or stabilized its sales,production, or employment as a result of TAAassistance—seems generally reasonable. How-ever, there are cases in which such a standardfails to measure success. For some firms bat-tered by import competition, the best strategymay be to contract, not expand, and find a nichein which the firm can succeed. For example,

llAugust G. Fromuth, Deputy Assistant Secretary for TradeAdjustment Assistance, letter dated June 30, 1986 to Ms. LouiseWoerner, President, HCR.

a New England company employing 500 peo-ple was producing three different kinds ofwoollens and was using compromise equip-ment, not the best for each kind of material,for “flexibility.” With the assis tance of theTAAC, the company put in a cost accountingsystem which enabled it to discover that twoof the three l ines of woollens were losingmoney. The TAAC advised the company toclose two of its three mills, cut down to 300workers, and concentrate on its profitable line.The company did so, although reluctantly, sincethe owners did not want to let the workers go.But the change made the company profitable,and made the 300 remaining jobs more secure.In this case, a firm succeeded by reducing sales,product ion, and emp loymen t , w i thou t t heTAAC assis tance, the company might havefailed, with the loss of even more jobs.

This sort of definition also has a more fun-damental flaw. In a high-risk program such asTAA, in which assistance is given to firms thatare already in trouble, it may be misleading todefine success solely by the adjustment rate ofindividual firms. One TAAC official advocatedwhat he called the “portfolio approach, ” Hesaid:

It’s like the way a venture capitalist oper-ates. He may have 10 busts for every hit, butif the hit is big enough, it pays for the failures.

Evaluating TAA assistance to firms wouldmean analyzing the costs and benefits of thewhole program, measuring the public expend-iture (now about $16 million per year) againstthe social benefits of the businesses and jobsthat are preserved. The dollar benefits to soci-ety include property and income taxes paid, andoutlays for unemployment insurance, adjust-ment programs, and other social programsavoided. No one has evaluated the program inthis way.

Some of the TAACs have offered illustrativeexamples, however. For instance, Dawson In-dustries, a Georgia apparel manufacturer, firstsought help from the TAA program in 1977,at a time when its line of women’s lingerie waslosing out to imports, and sales, profits, andemployment were declining. That year, the firm

6 3

paidjobs

only $4,000 in corporate taxes, and its 350were in jeopardy.

The first change Dawson undertook, with thehelp of the New York TAAC, was to c h a n g ethe firm’s line to higher fashion, more import-resistant sportswear; the company received a$1 million Trade Act loan to help make thechangeover. Sales increased, but profits stilllagged. The Southeastern TAAC then con-ducted an audit of the firm’s operations, andrecommended several changes to improve man-agement and reduce manufactur ing costs—such changes as re-engineering the sewingroom, retraining first-line supervisors, and de-veloping new piece rates and cost reporting.Sales continued to rise (to $30 million in 1983,up from $7 million 6 years before) and the com-pany began making acceptable profits.

In 1985, employment was up to 400 at Daw-son’s own plant, with many more workers em-ployed by subcontractors, Annual income taxesfrom corporate profits and the personal incometaxes from the 400 Dawson employees wereestimated at $1.5 million per year. The budgetfor the southeastern TAAC was $1.3 millionfor the year. In addition, when workers’ jobsare saved, unemployment insurance need notbe paid. At $125 per week (the average UI pay-ment in 1985), savings for 400 workers couldamount to $500,000, assuming an average of10 weeks’ unemployment; with longer unem-ployment , savings of UI might be over $1million.

The New England TAAC also provided OTAwith information on several firms that receivedassistance from the program and were still inbusiness in 1987, as a basis for a rough cost-benefit calculation. Four of the firms provid-ing data entered the program in 1983. Their to-tal employment in 1987 was 488. Based on pay-roll data provided by the firms and informationfrom the Internal Revenue Service on tax ratesfor a family of four in 1984 (the latest data avail-able), those workers paid, roughly, $911,500 inFederal taxes in 1984. In addition, UI paymentssaved for those 488 workers can be estimatedat $677,200. The combined benefit in incometaxes paid and UI payments avoided is roughly

estimated at $1,588,700 for 1984.12 The Federalgrant to the New England TAAC in 1983 (theyear these firms enrolled) was $l,040,000.

Obviously, this calculation is only illustrative.It does not give credit for corporate incometaxes or property taxes paid by the company,or for State income or other taxes paid by theworkers. It does not include all the firms thatenrolled in 1983 and afterwards improved theirsales and profits (two did not provide sufficientdata), On the other hand, it assumes that thefirms would have failed, with the loss of all theirjobs, without TAA assistance; and it creditsTAA with improvements that might have comeabout anyway because of the improving econ-omy. It does suggest, however, that a moredetailed analysis of the costs and benefits ofTAA for firms could offer a reasonable basisfor judging the success of the program,

The Dawson example from the SoutheasternTAAC is relevant to another issue, An argu-ment against the existence of the TAA programfor firms is that it provides a temporary reprieveat best; in a dynamic economy there will alwaysbe some declining industries, especially thosewhere labor costs are a significant part of totalcosts, and foreign labor costs are much lowerthan in the United States. The description fitsthe apparel industry. The prescription seemsto be to let the apparel industry go.

without get t ing into a number of broaderquestions—such as what happens to the U.S.textile and fiber industries if all apparel manu-facture goes offshore—one might considerwhether it is worthwhile for government to as-sist an industry that is in decline, but still em-ploys over 1 million people, to slow down andstretch out the decline. The Dawson examplesuggests that a program that helps even a fewcompanies survive for a few years—not neces-sarily for decades—may pay for itself. Another

IzFor ~onsistenc y O’r A ~lsed u I data f o r 1 9 8 4 , ‘1’h~! a\’e t’agcweekly (-II payment that year was $123.42, 1 n a 1986 sur~’e}’ ofdisplaced workers, the Bureau of l,abor Statistics foun(i that \\ork-ers losing jobs in the pre~ious 5 }’ears (] ue !() plant closings orproduction cutbacks were out of work for an average of 13 ~t’eeks.For this calculation. OTA assumed that the workers losing jobsin these trade-affected firms would collect U I for 13 weeks: theat’erage payment would thus amount to $1,604.50 per worker.

64

point is that it may not be inevitable for the en-tire American apparel industry to decline. Notall companies in industries facing severe im-port competition are fated to fail. Some partsof the industry, for example, standard items likemen’s shirts, may be hard to defend against im-ports. But there may well be continuing oppor-tunities in America for apparel manufacture—for example, in more specialized, higher fash-ion lines where a quick turnaround is impor-tant. A government program of technical as-sis tance to apparel f i rms capable of f i l l ingprofitable niches may succeed, and may payfor itself,

Improving TAA for Firms: Problemsand Opportunities

In early 1987, OTA surveyed directors andother officials of 11 of the 12 TAACs, 9 by tele-phone and 2 by site visits, Among the questionsasked were what problems the TAACs encoun-tered in carrying out the program, what wereits strong points, and how it might be improved.

Interruptions to the Program

The single point raised by every TAAC in theOTA interviews was the paralyzing effect ofthe interruptions to the program since Decem-ber 1985. Especially damaging were the 1-and2-month extensions, mostly with no grants offunds, in f iscal year 1987. Firs t , when theCommerce Department ordered all the TAACsto close down following the lapse of legal au-thority for the program, the TAACs were forcedto break implementation contracts with manyof their clients. When they reopened monthslater, many clients declined to return to the pro-gram, And it was hard to attract new clients,since none of the TAACs had agreements last-ing longer than a few months (through the endof 1986). Firms that might have welcomed TAAassistance were reluctant to make a commit-ment of t ime and money which the TAACsthemselves could not make.

The situation worsened in 1987, when exten-sions were kept to a month or two, and thefunds allowed the TAACs were only enough tokeep the doors open. Many staff members left

and could not be replaced; a typical reductionin staff was from 15 to 18 down to 2 or 3. Thestaff members who remained were job hunt-ing, In April 1987, the TAACs had agreements,with minimal funding, last ing only throughJune 15.13 They owed millions of dollars of tech-nical assistance to firms with whom they hadcontracts dating back to 1985 and before. Theywere losing their legitimacy with businessesthat might profit from their assistance.

Time Restrictions

Before the disruptions that began in Decem-ber 1985, most of the TAACs found TAA forf irms to be, on the whole, administrat ivelyworkable, Two or three features of the programhave created difficulties, however. One is theinflexible time limit of 1 year during whichTAACs can commit themselves to serve theirclient firms. As described earlier, the shortesttime possible for producing an adjustment strat-egy is more than 6 months, and in practice thetime is usually several months longer. often,the firm itself will delay in committing itselfto an adjustment plan, while weighing the costsand benefits.

Commerce Department rules prohibit theTAACs from undertaking any activity, whetherwith clients, consultants, or anyone else, thatwill last past the end of the TAAC’S grantperiod. The way TAACs and their clients havehandled this restriction in the past, when theTAACs customarily had 12-month grants, wasto make a good faith assumption that the TAACwould be around the next year to finish the job.For consultants, one strategy was to break upa technical assistance program into smallerparts that could be completed within the timelimits, This can bean awkward and expensiveway of managing a project, however, Anotherpossibility would be to allow the TAACs tomake contracts that last past the end of the grantyear, contingent on their receiving grants thefollowing year. With the recent 1- and 2-monthextensions, TAACs have been effectively barred

1 3A s noted, in May 1987 t h e C o m m e r c e D e p a r t m e n t a s k e d f o r12-month grant proposals from the TAACs to cover the periodJune 1987 to May 1988.

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from giving any implementation assistance atall, since the time is too brief even to get itstarted. Five TAACs said in response to OTA’ssurvey that a 1 2-month grant period is the min-imum period they can work with.

Outreach

An October 1981 directive from the Depart-ment of Commerce prohibits TAACs from di-rectly approaching firms, by letter or phone call,to acquaint them with the TAA program or of-fer TAAC services, The purpose of the restric-tion, according to the Commerce Department,is to prevent any firm’s feeling pressured to re-ques t t r ade a s s i s t ance , TAACs may makespeeches or take part in seminars sponsoredby industries or communities and explain theTAA program, but must make it clear that itis up to the firm to take the initiative to requestassistance.

Most of the TAACs have found it a handicapto operate under this restriction, since the TAAprogram for firms is small, unpublicized, andlittle known. The TAACs do make their pro-gram known to industry organizat ions andChambers of Commerce, Members of Congress,Governors, State and local agencies, and com-munity organizations, The TAACs that are af-filiated with universities and economic devel-opment agencies use these groups to contactfirms. The necessity to make themselves knownthrough a network has proven a positive bene-fit to some of the TAACs, though most wouldlike to be free to approach firms directly. Forexample, one TAAC director said he knew thata leather goods firm in his community was introuble, and would have liked to offer TAAassistance. Eventually the firm did find outabout the TAA program, and asked for help,but by that time the firm was too far gone toprofit from assistance.

Affiliations With Other Institutions

For some of the TAACs, close links with otherinstitutions are a source of strength. Five of theTAACs are independent, governed by boardsrepresenting State and local agencies and theprivate sector. The others are associated with

or under the wing of other institutions, Six areaffiliated with universities, Four of those con-sider the university connection very advanta-geous .14 It gives them legitimacy and helps themattract the kind of clients that can benefit fromtheir services, and it gives them ready accessto help from teachers, researchers, and gradu-ate students in business and engineering schools,

The TAACs that seem to have the closestuniversity links are the Southeastern, western,and Great Lakes. The Southeastern TAAC isan integral part of the Georgia Tech ResearchInstitute, under its Industrial Extension Serv-ice. Staffed with Georgia Tech Research Insti-tute employees, the TAAC is able to tap the ex-pert ise of the entire Inst i tute, with i ts 650professional and 150 academic researchers. Anespecially valuable resource is the Institute’sindustrial training program, which specializesin training for first and second line supervisors.Another advantage Georgia Tech confers is itsname. Georgia Tech is so respected through-out the southeast that the TAAC staff find theyhave immediate entree to many businesses thatmight not react so favorably if they saw theTAAC as a government agency. In addition, theSoutheastern TAAC has been able to weatherthe disruptions of 1986-87 better than most be-cause it can trade and share staff with otherdepartments of the Institute. Once staffed with19 full-time equivalent staff members, it wasdown to seven full-time equivalents, including10 people, in early 1987.

The Western TAAC gears most of its assis-tance to designing new products and produc-

liThe}, are Southeastern, ki.hich is connected \V ith Georgia ‘l”c{;hResearch Institute; Great Lakes, ttith the ( lni\rrsity of hfichi-gan; Mid-American (not interviewed b~ OTA), affiliated withSt. Louis Uni\rersity; Rock} Mountain, tiith the ( ~ni~ersit~ ofColorado; and Western, with the Uni\ersit\ of Southern (~ali-fornia, The New York State TAAC, associatecj mith the StateUniversity of New York at Binghamton, i~ largely autonomous;the university’s contribution is largely (,onfined to help without reach.

The Mid-America TAAC was prek’iousl} located in I.ittle Rock,AR, but it ceased operations in 1986, TAACs suri’e}re(i b~ tele-~)hone were Nett }’ork State, Binghamton, N7Y; Metro Ne\\ York,Ne\\I }rork, N}r; New Jerse\, Trenton, NJ; Mid-Atlanti(; , Phila-de] ~Ih i a, PA: Great I,akes, Anne A rhor, hl I; NI id-W’est, C}] ic ago,11,; Rock) hloontain, Boulder, CO; North \\est, Seattle, WIA; an(lJ1’estern I,os Angeles, CA, ‘1’he “1’AACS \isited b~’ OTA staff were.New En~lan(l, Boston, hlA, and Southeastern, Atlanta, GA.

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tion processes, and to installing computer sys-tems; its association with USC gives it accessto the university’s research center for technol-ogy transfer. One professor each from the busi-ness and engineering schools serve part timeon the TAAC. The university also serves as abase for the TAAC’s outreach and administra-tive activities.

The New Jersey TAAC says it profits fromits association with the State’s Economic De-velopment Authority. As a part of the State’sbusiness retention services, it has access bothto expertise in the agency and to financial assis-tance for firms via the State industrial revenuebonds. Also, the agency helps the TAAC withoutreach throughout the State.

Broader Eligibility

TAAC officials mention two problems witheligibility for the program, First, as with TAAfor workers, service and supplier industries arenot eligible. Then, it is sometimes hard to drawthe line for firms that are manufacturing goods.For example, if a firm makes several products,some affected by imports but others not, anyproduct line that accounts for at least 25 per-cent of the firm’s total sales maybe consideredfor eligibility. But unless the firm’s overall em-ployment is declining, none of its products canbe certified for assistance. Often, firms losingout to foreign competitors in one product linewill shift workers to another line as a temporaryexpedient; yet over time, the firm’s position mayerode. An earlier intervention might have keptit out of trouble.

In general, the need for an early response isnot as clear for trade-affected firms as it is forworkers losing their jobs, However, timely in-tervention, offered when a firm still has somestrengths, is obviously more likely to succeedthan help that is delayed until the firm is onits last legs, It has sometimes been suggestedthat whole industr ies might be cert i f ied asimport-affected, so that firms do not have towait till their sales or production are alreadyin decline before they are eligible for assistance.This of course would enlarge the universe offirms eligible for help; so would the extension

of eligibility to service and supplier firms. un-less given additional funds, TAACs would thenhave to be more selective than they are now,or service to firms would have to be diluted,w i t h b r i e f e r , m o r e s u p e r f i c i a l a s s i s t a n c eoffered.

An alternative to broadening eligibility forTAA services is to offer industrial extensionservices to any manufacturing firm that needsto improve i ts management and technology.Possible models for this kind of service, opento all, range from the highly competent but time-limited assistance offered by Georgia Tech’s In-dustr ia l Extension Service to the venerableAgricultural Extension Service, with its com-bination of Federal, State, and county funds,applied research in the land-grant universities,and delivery of services by county agents. Al-though it is certainly not free from criticism,the Agricultural Extension Service has receiveda great deal of the credit for fostering the tech-nologically advanced, highly productive agri-culture of the United States, The service hastaken many years to develop, costs close to $1billion per year, and would not be instantlyreplicable in an industrial extension service.It represents the high end of the range of pos-sibilities for diffusing technology to manufac-tur ing industr ies .

The TAA Industrywide Program

Since 1978, when industrywide TAA assis-tance began, the Department of Commerce hassigned 52 cooperative agreements with repre-sentatives of a variety of trade-affected indus-tries, providing technical and export assistance.Industry associations (or other representativesof industry) share the cost of developing im-proved manufacturing technologies, better mar-ket analysis, and other kinds of technical assis-tance that wil l help f irms in the industrybecome more competitive at home and abroad.They also cooperate in helping firms exporttheir products more effectively.

To qualify for the program, an industry mustshow that its sales or production have declined,that firms in the industry have been certifiedas TAA-eligible, that the project results will lead

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to prompt actions by the industry, and that theindustry will commit time, money, and effortto carrying out the project and making its re-sult known to members. usually the industryprovides one-quarter to one-half of the cost ofthe project.

The TAA industrywide program began witha heavy concentrat ion on footwear and thetextile-apparel industry; apparel and textiles re-main at the top in funding, but footwear hasdropped out and other industries—electronics,auto parts, iron products—have received moreattention recently. Most of the industrywideprojects are short term; the Commerce Depart-ment considers its contribution seed money,to get the industry started on technology andmanagement improvements for i ts members ,which the association will then take over itself.One of the bigger recent projects ($450,000 inTAA funds over 3 years plus $805,500 from in-dustry) is for improved iron casting. As shownin table 5, the industrywide program was fundedat about $2.5 million to $4 million in recentyears .

By far the largest industry project TAA hassupported is TC2 (Textile & Clothing Technol-ogy Corp.), whose purpose is to produce a ma-chine that will automatically load, fold, and sewlimp fabric, particularly in the exacting task ofmaking men’s suit jackets. Contributions to thatproject from TAA funds amounted to $1.6 mil-lion in 4 fiscal years, 1981 through 1984. Whenthe Commerce Department attempted to ceasefunding TC2 after 1984, Congress took over andprovided line item appropriations, $3.5 millionin 1985, and $3.3 million in 1986 and again in1987. (In April 1987, however, the Commerce

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Department had not yet made any grants fromthe fiscal year 1987 funds for TC2.) From 1981on, the industry provided $10.7 million in cashfor the project, and more resources (e.g., stafftime) in kind.

The industry association offices being openedin Tokyo are examples of TAA export assis-tance to industries. The American ElectronicsAssociation established a Tokyo office in 1984with TAA help, and the Motor Equipment Man-ufacturers Association planned to follow suitin 1987. Although the Commerce Departmentintended to limit TAA funding for these officesto 3 years, representatives of the electronics in-dustry have asked that it be continued, on thegrounds that the Japanese take government in-volvement seriously, as an emblem of the in-dustry’s importance to the U.S. economy,

Administration officials in the Commerce De-partment do not express the same “philosoph-ical” objections to the TAA industrywide pro-gram as to the program for firms; one describedit as a “bright spot. ” However, the CommerceDepartment has given no funds to the indus-trywide TAA program in fiscal year 1987, be-cause officials interpreted language in reportsof the House and Senate Appropriations Com-mittee as reserving all Commerce TAA fundsto the program for firms. The program is popu-lar with a number of industry associat ions;some protested to Congress about the cutoff offunds. As noted earlier, the House Appropria-tions Committee explicitly stated in its reporton a bill providing supplemental TAA appropri-ations that funds should be available to indus-try projects as well as to the TAACs, for tech-nical assistance to firms.