Adjustment and Income Distribution Impacts of the Trans-Pacific Partnership

Working Paper
16-5
March 2016

The authors estimate the adjustment costs of the Trans-Pacific Partnership (TPP) on workers and compare these costs with the agreement's benefits. They also estimate its impact on the distribution of income across US households. Between 2017 and 2026, when most of the adjustment to the TPP occurs, the costs to workers who will be displaced, both from unemployment and lower future wages, will amount to about 6 percent of the agreement's benefits. For the full adjustment period (2017–30), the benefits are more than 100 times the costs. These benefits will be widely shared. The percentage gains for labor income from the TPP will be slightly greater than the gains to capital income. Households in all quintiles will benefit by similar percentages, but once differences in spending shares are taken into account, the percentage gains to poor and middle-class households will be slightly larger than the gains to households at the top. Thus the agreement will confer net benefits to households at all levels of income and will certainly not worsen income inequality. These findings lend support to the passage of the TPP, but they also point to an increased role for adjustment assistance for those who are hurt by the agreement. A Trade Adjustment Assistance program with more generous wage-loss insurance should be part of the legislation implementing the TPP.

Data disclosure: Publicly available data are drawn from the Current Population Survey (Bureau of Labor Statistics/Census Bureau) Public Use Microdata, the Consumer Expenditure Survey Public Use Microdata (Bureau of Labor Statistics), and the National Income and Product Accounts (Bureau of Economic Analysis).