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.