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Gains from Trade? The Net Effect of the Trans-Pacific Partnership Agreement on U.S. Wages

Gains from Trade? The Net Effect of the Trans-Pacific Partnership Agreement on U.S. Wages

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Recent estimates of the U.S. economic gains that would result from the proposed Trans-Pacific Partnership (TPP) are very small — only 0.13 percent of GDP by 2025. Taking into account the un-equalizing effect of trade on wages, this paper finds the median wage earner will probably lose as a result of any such agreement. In fact, most workers are likely to lose — the exceptions being some of the bottom quarter or so whose earnings are determined by the minimum wage; and those with the highest wages who are more protected from international competition. Rather, many top incomes will rise as a result of TPP expansion of the terms and enforcement of copyrights and patents.The long-term losses, going forward over the same period (to 2025), from the failure to restore full employment to the United States have been some 25 times greater than the potential gains of the TPP, and more than five times as large as the possible gains resulting from a much broader trade agenda.
Recent estimates of the U.S. economic gains that would result from the proposed Trans-Pacific Partnership (TPP) are very small — only 0.13 percent of GDP by 2025. Taking into account the un-equalizing effect of trade on wages, this paper finds the median wage earner will probably lose as a result of any such agreement. In fact, most workers are likely to lose — the exceptions being some of the bottom quarter or so whose earnings are determined by the minimum wage; and those with the highest wages who are more protected from international competition. Rather, many top incomes will rise as a result of TPP expansion of the terms and enforcement of copyrights and patents.The long-term losses, going forward over the same period (to 2025), from the failure to restore full employment to the United States have been some 25 times greater than the potential gains of the TPP, and more than five times as large as the possible gains resulting from a much broader trade agenda.

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Published by: Center for Economic and Policy Research on Sep 10, 2013
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10/01/2013

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September 2013 
David Rosnick is an economist at the Center for Economic and Policy Research, in Washington D.C.
Gains from Trade?
The Net Effect of the Trans-PacificPartnership Agreement on U.S. Wages
By David Rosnick*
Center for Economic and Policy Research
1611 Connecticut Ave. NWSuite 400Washington, DC 20009
 
tel: 202-293-5380fax: 202-588-1356www.cepr.net
 
 
Gains from Trade? The Net Effect of the Trans-Pacific Partnership Agreement on U.S. Wages 1
Introduction
Recent estimates of the U.S. economic gains that would result from the proposed Trans-PacificPartnership (TPP) are very small
 — 
only 0.13 percent of GDP by 2025. Taking into account the un-equalizing effect of trade on wages, the median wage earner will probably lose as a result of any suchagreement.In fact, most workers are likely to lose
 — 
the exceptions being some of the bottom quarter or so whose earnings are determined by the minimum wage; and those with the highest wages who aremore protected from international competition. Rather, many top incomes will rise as a result of  TPP expansion of the terms and enforcement of copyrights and patents. The long-term losses, going forward over the same period (to 2025), from the failure to restore fullemployment to the United States have been some 25 times greater than the potential gains of the TPP, and more than 5 times as large as the possible gains resulting from a much broader tradeagenda.
Gains from Trade?
 According to the latest estimates from researchers Peter Petri, Michael Plummer, and FanZhai (henceforth referred to as PPZ),
1
the United States may see cumulative GDP gains of 0.13 percent by 2025 if the TPP were implemented.
2
This figure is meaninglessly tiny inalmost any reasonable context. To start with, this amounts to a rounding error. According to the (PPZ) model results, theU.S. economy will grow 2.4 percent per year between 2015 and 2025 without the TPP. Withthe TPP, the researchers estimate the economy will grow 2.4 percent per year over the sameperiod. In isolation, the annual one-hundredth of 1 percentage point of growth for 10 years would be better than no additional growth. However, growth is not the only effect of tradeagreements. There are winners and losers from trade, and research has shown that tradecontributes 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.From 1990 to 2007,
3
wage inequality in the U.S. increased significantly. As seen in Figure 1,the bottom 90-95 percent of the annual wage distribution grew more slowly than the average wage. Figure 1 does not look at wages below the 25
th
 
percentile as many of these workers’
 wages will be dictated by the minimum wage and not by trade.
1 Petri, Plummer, and Zhai (2012).2 Based on tables taken from simulations conducted for Petri, Plummer, and Zhai (2012) [http://asiapacifictrade.org/wp-content/uploads/2012/10/Macro-results-1-Oct-2012.xlsx].
 
3 Both 1990 and 2007 were business-cycle peaks

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