Sizing up the Trade Adjustment Assistance program

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Congress this week reauthorized a program that offers aid to American workers who are displaced by foreign competition and, in doing so, made a concession to critics of a sweeping free trade agreement among 12 Pacific Rim nations.

But with the onus now on the Obama administration to bring home a good deal for America, it's worth asking whether the program, known as the Trade Adjustment Assistance (TAA), is worth the hundreds of millions of dollars the federal government spends on it.

There is no doubt that free trade agreements produce winners and losers. Since 1974, the federal government has tried to minimize the adverse effects of global trade by paying for job training and offering other benefits to workers whose jobs are sent overseas or whose employers cave under pressure from foreign rivals.

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But while free trade has become a divisive issue, data show it plays a relatively small role in total job losses.

Between 1996 and 2004, the Bureau of Labor Statistics attributed less than 3 percent of mass layoffs to import competition and relocation overseas (Tweet This). The survey period began just two years after the implementation of the North American Free Trade Agreement, which removed barriers between the United States and its two biggest trade partners, Canada and Mexico.

That said, international trade does have an outsize negative impact on America's manufacturing sector. Nearly three-quarters of the applications from employers and workers seeking designation for trade displacement came from the manufacturing sector.

Since TAA's inception, the Department of Labor has certified nearly 4.8 million workers as hurt by global trade. About 2.2 million of those eligible to receive benefits or training took advantage of the program.

The federal government distributed $756 million through the program in fiscal year 2013, the most recent period for which the department issued an annual report.

The program covers the cost of apprenticeships, on-the-job training, secondary school and other educational programs that can help displaced workers become re-employed. That part of the program, along with employment services, job search and relocation allowances, and state administrative costs accounted for $534 million of the total.

Whether the program is effective depends on how you measure it, said Robert Z. Lawrence, former economic adviser to President Bill Clinton and a professor of international trade at the Harvard Kennedy School of Government.

"If you view it as a compensation program, I would say it's reasonably effective as compensation," he said.

TAA's extended unemployment benefits are available to those who opt to take advantage of job training or obtain a waiver. The program also supplements the incomes of workers older than 50 who accept a job at a lower wage.

Beyond functioning as compensation, any evaluation must also factor in wage losses, Lawrence said.

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There is some evidence that TAA participants earn less than they made in their previous positions and may have earned more had they sought work instead of participating in training.

In 2006, Kara Reynolds and John Palatucci from the American University concluded that "the TAA program is of dubious value to displaced workers."

That study found that TAA participants earned 30 percent less on average than they made in their previous positions. Displaced workers in a comparison group—one that didn't receive TAA training or benefits—also saw their wages fall once they became employed again, but by only 9.4 percent.

It's important to note that that study evaluated the 2002 version of the law. Congress approved TAA expansions in 2009 and 2011 that made the program available to service-sector workers, rather than only factory workers, farmers and fishermen. It also increased the period during which benefits could be collected and sought to improve connections with employer partners and community colleges.

The 2002 law has been in place since 2014, following the expiration of the 2011 version. The improvements incorporated into the 2009 law were included in the bill passed Thursday.

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Another, more recent study of the 2002 law conducted over several years by policy research firm Mathematica found the costs of the program outweighed the benefits by nearly $54,000 per participant.

However, that headline figure does not mean TAA is ineffective, said Peter Schochet, a senior fellow at Mathematica who directed the research. It may be too early in the study to tell whether the cost of the program outweighs the benefits, he said. Mathematica is continuing its study and will release additional information within two years.

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What is clear thus far, Schochet said, is that two groups—young people and those who take advantage of job training—fared better than older participants and those who just collected benefits through TAA.

Mathematica also found that wages were lower for TAA recipients early in the period studied than for displaced workers with similar characteristics who did not participate in the program. That could be for any number of reasons, Schochet said, but it may have something to do with the demographics of the program.

"The typical TAA workers are the manufacturing, unionized, pretty-good-wages-and-benefits people that have been there for generations, so it takes time for these people to be retrained," he said. "A lot of them haven't been in school for some time."

The TAA has an interesting political aspect: It's often the key to unlocking Democratic support for free trade deals, and the value of free trade is "quite large" to the average worker, according to Schochet.

The 12-nation Trans-Pacific Partnership would add $78 billion, or 0.4 percentage points of GDP, to the U.S. economy by 2025, according to a widely cited study by Peter Petri and Michael Plummer at the Peterson Institute for International Economics.

Those gains would come largely from increased exports of business and financial services, agricultural products and food. Petri and Plummer conclude that manufacturing exports would also increase, but overall the pact would worsen the U.S. trade deficit in manufactured goods.

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So what to do about the new ranks of manufacturing workers who will presumably be displaced?

Robert Z. Lawrence said he believes the United States needs a bigger program that accommodates workers regardless of the cause of their displacement. Along with two peers, he published a 2008 white paper that suggested that the government merge the best parts of the unemployment insurance program, TAA and the Workforce Investment Act.

However, such a sweeping overhaul has little chance of gaining traction given Washington's political paralysis, he said, so TAA will have to suffice.

"In the current state, given the political realities in Washington, it's the least we can do. But is it the best possible? Absolutely not," he said.