Adjustment and Income Distribution Impacts of the Trans-Pacific Partnership

Abstract

This paper estimates the adjustment costs of the Trans-Pacific Partnership (TPP) on workers and compares these costs with the agreement's benefits. It also estimates the TPP's 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) that Peter Petri and Michael Plummer (2016) consider, the benefits are more than 100 times the costs. The benefits from the agreement 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. While the United States as a whole would benefit from the TPP, there is a case for an assistance program that would compensate those who lose.

Keywords: Trade Adjustment Costs, Inequality, Income Distribution

JEL Classification: F16