The Trans-Pacific Partnership: A Lever for (modest) Job Creation or Job Losses?
The Trans-Pacific Partnership (TPP) is a comprehensive trade and investment agreement covering 40% of the global economy. TPP was concluded on 5th October 2015 after more than 5 years of negotiations. TPP consists of a diverse group of 12 countries that includes Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States and Vietnam.
When TPP supporters argue for the necessity of TPP one of the key arguments is that TPP is needed to create jobs and growth by levelling the playing field. Accordingly, TPP is being promoted as the key to increase growth as well as more and better paying jobs. However, there are good reasons to question such promises. The experiences of past trade deals, like the North American Free Trade Agreement (NAFTA), demonstrate that such promises of jobs and growth did not materialise. Rather on the opposite, such trade deals contributed to wage stagnation and job losses.
The potential economic consequences of TPP
Recently, a number of studies aiming at predicting the potential economic consequences of TPP have been published. While such studies always will involve uncertainties with regards to the economic predictions, the results demonstrate that the economic benefits will be rather limited or even negative for the countries involved. Even the most optimistic studies, such as the World Bank study and the study of the Peterson Institute for International Economics, estimate an average economic increase of 1.1% of GDP by 2030 or 0.079% of GDP on an annual basis. For some of the countries, like the US and Japan, the estimated economic benefits are negligible. Accordingly, the US is predicted an economic increase of 0.5% of GDP by 2030 (Peterson Institute for International Economics study) or 0.036% on an annual basis. Even for the countries with the highest economic predictions, such as Vietnam and Malaysia, the potential results are not extraordinary. The increase for Vietnam and Malaysia is estimated at respectively 10% of GDP and 8% of GDP by 2030 (World Bank study), i.e. on an annual basis it would translate into respectively 0.714% of GDP and 0.571% of GDP.
The two studies mentioned above use the so-called computable general equilibrium (CGE) model that is based on the assumption that all economies operate constantly in full employment. However, assuming full employment is not a very appropriate start for estimating job creation. In order to achieve a more realistic estimate of the likely economic outcomes of TPP The Tufts study uses the United Nations Global Policy Model (GPM) that takes into account macroeconomic consequences and the results are strikingly deviant to the previously mentioned studies. Instead of a minor positive outcome, it shows negative impacts on growths in the US and Japan as well as rising levels of inequality and job losses in all TPP countries.
Job churn or job losses ?
The Tufts study estimates 770.000 job losses across the TPP countries, with the majority of the job losses occurring in the US, during a period of 10 years. In contrast, the World Bank study mentions the “sectoral shifts” that are likely to happen as a consequence of TPP and the study of Peterson Institute for International Economics predicts everything from 18.900 to 160.700 “job shift” per year. However, due to the assumption of full employment any job loss is considered to be immediately replaced by a new job in another sector. For that to be true, sector specific skills would not be of importance and there would be no need for new education and training in order to change to a different sector. In reality, this is not the case. Workers may not immediately find a new job and even when they do it may be jobs with lower wages. In the case of NAFTA the majority of workers that lost their jobs suffered a permanent loss of income. To facilitate such job transitions education and training policies together with appropriate assistance schemes are fundamental. This in return requires high-quality public services that may face increasing pressures, including in terms of revenues when job losses are likely resulting in a reduction of tax revenues.
The recent studies looking into the potential economic implications of TPP do not support the claim that TPP would result in significant jobs and growth creation across the TPP countries, rather on the opposite the likely economic implications seem to be rather negligible or even negative. In addition, the Tufts study predicts that TPP will result in rising levels of inequality and job losses in all TPP countries.