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September 12, 2013

Study: "Trade" Deal Would Mean a Pay Cut for 90% of U.S. Workers

The verdict is in: most U.S. workers would see wage losses as a result of the Trans-Pacific Partnership (TPP), a sweeping U.S. "free trade" deal under negotiation with 11 Pacific Rim countries.  That's the conclusion of a report just released by the non-partisan Center for Economic and Policy Research (CEPR).  

TPP's corporate proponents have tried to sell the NAFTA-style deal to the U.S. public and policymakers by claiming that it will result in gains for the U.S. economy.  They often cite a study from the Peterson Institute for International Economics that used sweeping assumptions to project a tiny benefit from the TPP. We brought that study down to size back in January, showing that, even if one accepts the pro-TPP authors' litany of optimistic assumptions, the much-touted "benefit" from the TPP would amount to an extra quarter per person per day

As this week's CEPR report points out, the pro-TPP study projected a meager 0.13 percent increase to U.S. gross domestic product (GDP) by 2025 if the controversial TPP would be signed, passed, and implemented.  By comparison, economists have estimated that Apple's iPhone 5 contributed a 0.25 - 0.5 percent increase to U.S. GDP.  

That is, the TPP's total contribution to the U.S. economy is expected, by TPP proponents, to be about one half to one fourth of the contribution of the latest iPhone version. 

Well, you might say, a nearly invisible blip in GDP is better than no blip in GDP.  (You might say this if you ignore the host of dubious assumptions used to project said blip, and ignore the TPP's expected threats to medicines affordability, environmental protections, food safety, Internet freedom, and financial stability.) 

But what would such a paltry GDP rise mean for your pocket?  Answering that requires taking into account the increase in income inequality that typically results from such "free trade" deals.  The author of the CEPR report, economist David Rosnick, explains, "There are winners and losers from trade, and research has shown that trade contributes to inequality. In fact, it would take only a very small contribution to inequality due to trade to wipe out all of the gains that most workers would get from this agreement."  Rosnick then uses the empirical evidence on the trade-inequality relationship and shows that even taking the most conservative estimate of trade's contribution to inequality (that trade is responsible for just 10% of the rise in inequality), the losses from projected TPP-produced inequality indeed would "wipe out" the tiny projected gains for the median U.S. worker.

That is, as a result of the TPP, the median U.S. income would fall. It would not just fall in comparison to the incomes of the wealthy (which would rise). It would fall in absolute terms, forcing middle-class U.S. workers to take home less in 2025 than they earn today. 

Such wage losses would afflict most U.S. workers.  Rosnick shows that if we assume that trade has contributed just 15% of the recent rise in inequality (a still conservative estimate), then the TPP would mean wage losses for all but the richest 10% of U.S. workers.  So if you're making less than $87,000 per year (the current 90th percentile wage), the TPP would mean a pay cut.  And if you're making more than $87,000 per year, you may still be a tad concerned about how the deal could jeopardize the safety of your food, threaten clean water protections, roll back Wall Street reforms, etc. 

Click here for the disturbing report from CEPR

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Comments

Paula Martin

https://www.youtube.com/watch?v=09ybkkiH2Ho

To view highlight and click on link near the bottom of options.

Patricia Bruno

I read nothing but bad news for the majority of the American working force in connection with the TPP. Who, then, is pushing for this trade agreement to be ratified and what are the names of those who are negotiating for the United States? If we're being sold down the river, we should at least know just who is doing the deed and from whom they're taking orders.

PartyRecon

I have been screaming at the top of my lungs that the TPP is no less than the Angel of Death, and it's coming for the U.S. middle class. It is also the absolute WORST abuse of Presidential Powers since Tea Pot Dome. Everyone in the country needs to learn about this monstrosity and demand that the contents, or at least a general summation of the contents be made public.

And before you accuse me of making this "political", know that the TPP is a bi-partisan effort, started Under President Bush (2005) and carried forward by the Obama Administration. It is the ultimate sell-out of both parties to the rich and powerful.

jra

How about workers in other countries? If they were to benefit from this, even indirectly, doesn't that change the picture? Assuming some of what will drive down American wages is increased competition and the movement of jobs to places with lower wages? Hasn't this historically been a vehicle for economic growth, even if it disadvantages relatively privileged members of the working class while hugely enriching the wealthy? It just doesn't seem that meaningful to say that the predicted negative effect on most Americans is a good enough progressive reason to oppose something. It's a big world and Americans are a small and relatively extremely well-off minority. Inequality within the US matters, but it matters within a larger global context. That said, I have no idea if this will actually benefit workers in other countries, since obviously these things are really complicated and the 'free trade helps things' model I sketched out is really simplistic and could in a given case be totally untrue, based on many different factors. But can we hear about those factors too? If there has already been study of those, where can I find it? Thanks .. an economically uninformed but hopefully careful progressive.

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