Adjustment and Income Distribution Impacts of the Trans-Pacific Partnership

20 Pages Posted: 16 Mar 2016

See all articles by Robert Z. Lawrence

Robert Z. Lawrence

Harvard University - Harvard Kennedy School (HKS); National Bureau of Economic Research (NBER)

Tyler Moran

Peter G. Peterson Institute for International Economics

Date Written: March 14, 2016

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

Suggested Citation

Lawrence, Robert Z. and Moran, Tyler, Adjustment and Income Distribution Impacts of the Trans-Pacific Partnership (March 14, 2016). Peterson Institute for International Economics Working Paper No. 16-5. Available at SSRN: https://ssrn.com/abstract=2747569 or http://dx.doi.org/10.2139/ssrn.2747569

Robert Z. Lawrence (Contact Author)

Harvard University - Harvard Kennedy School (HKS) ( email )

79 John F. Kennedy Street
Cambridge, MA 02138
United States
617-495-1118 (Phone)
617 496 2850 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Tyler Moran

Peter G. Peterson Institute for International Economics ( email )

1750 Massachusetts Avenue, NW
Washington, DC 20036
United States

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