In trade-jobs debate, the fine art of misleading data

When opponents of the trade pact with South Korea say 59,000 jobs would be lost in Washington state, how factual is that claim, and where does it come from?

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Cranes at the Port of Seattle.

When opponents of the trade pact with South Korea say 59,000 jobs would be lost in Washington state, how factual is that claim, and where does it come from?

In his “jobs” speech to Congress, President Obama called on lawmakers to “clear the way” for free-trade agreements (FTAs) with South Korea, Columbia, and Panama. He was referring to bills now under consideration that implement the FTAs.

Several members of Washington State’s congressional delegation are actively supporting the South Korean (KORUS) pact, in particular. But it remains controversial among groups in the state that closely follow trade issues. And they widely disagree on the economic benefits measured by the value of traded items and jobs gained and lost.

Trade numbers can be misunderstood and misused. Two recent op-ed articles that address pending free-trade pacts with South Korea, Columbia, and Panama exemplify the problem.

In one, authors representing the Washington State Labor Council (WSLC) and the Sierra Club, argue for rejection of all three agreements. They say that KORUS (the South Korea-U.S. free trade agreement [FTA]) alone would increase the U.S. trade deficit by $16.7 billion and displace 159,000 U.S. jobs, with more than 59,000 jobs lost in Washington State.

Writing for the Washington Council on International Trade (WCIT), another author takes a decidedly opposite perspective. He suggests that the KORUS would be good for both the U.S. and state economies: Increasing the value of U.S. goods exported by at least $10 billion, while maintaining and creating jobs across the state and increasing revenues for "a wide range of state-based employers."

These predicted impacts measured in trade and jobs lost and gained are obviously widely disparate. We will not attempt to resolve the many other points of disagreement on the FTAs here, but will try to clarify numbers that are important to Washington’s economy.

First, it’s crucial to distinguish “displaced workers” from “lost jobs”. Workers may be displaced from stable jobs without permanently losing their jobs. They may find new jobs, perhaps after a period of unemployment, retraining, or relocation. Or they may drop out of the labor force altogether. The outcome for these workers is usually determined by follow-up surveys after displacement has occurred.

Jobs are “lost” when positions are permanently eliminated because of fundamental structural changes in an economy. These changes include technological innovation, shifts in the location of activities, changes in the structure of employment and organization within enterprises, and changes in the pattern of international trade. Jobs are usually considered lost when they are off-shored (exported).

Now let’s fact-check the national numbers, starting with those mentioned by the WSLC/Sierra Club. The source for the first two – a $16.7 billion increase in the trade deficit and displacement of 159,000 U.S. jobs in 7 years - is the Economic Policy Institute (EPI), a Washington, DC “non-partisan” think tank.

They were produced by an in-house economist at the EPI who "projected" them from experience with the Mexico FTA (North American FTA) and China before and after its WTO entry.

The problem with economic projections based on circumstances that are very different (Mexico and China) from those under consideration (South Korea) is that they can fail to meet a standard econometric test. Projections are usually considered valid when important variables match. Peer review is important in any case, and there is no indication that this unpublished work was subjected to it.

And then, as indicated above, displacement is not synonymous with job loss. But even if it was, 159,000 jobs is a fraction of the U.S. workforce that most recently numbered 155 million. Not insignificant, but small: About 0.1 percent.

The WCIT author cites numbers that were developed by the U.S. International Trade Commission (USITC), an independent federal government agency, using an economic model. Their numbers were first estimated in an extensive 2007 analysis, and then updated in January and announced by Oregon’s Senator Ron Wyden. The new analysis suggests that KORUS has the “potential” to create about 280,000 new American jobs and increase U.S. annual economic output by $27 billion.

So where does the truth lie? After looking at all previous studies (including the USITC/Wyden and EPI estimates), the Congressional Research Service, which does non-partisan analysis on important issues before Congress, summarizes the answer this way:

“Economic modeling naturally incorporates various assumptions and entails differing methodologies that can have a profound effect on the estimates that are generated…The mark of a good economic model often is one that uses assumptions and methodologies that seem reasonable and are not geared toward generating any particular result.

In contrast, non-standard models often use non-standard assumptions… that seem to have been chosen in order to generate pre-determined results…(T)he most accurate models likely can provide only rough estimates of the magnitude of the potential changes in employment in certain sectors, but would not offer estimates of the exact size of the shifts in employment…

Estimates of employment effects of new FTAs...can be misleading, because they represent a partial accounting of the total economic effects of new FTAs…that include provisions for goods, services, and investment. In addition, the estimates neglect a broad range of benefits for the economy as a whole that potentially can provide consumers with large economic benefits and that can yield broad productivity and efficiency gains for the economy that may well enhance employment.

As a result, estimates of the employment effects of new FTAs may serve poorly as an indicator of the total impact of a new FTA on the economy as a whole.”

This is may be a diplomatic way of saying “a pox on all your estimates.” And it suggests that when Congress acts on KORUS it needs to consider a host of subjective factors.

So that leaves the state jobs number (59,000 jobs lost), which the WSLC/Sierra Club op-ed indicates was produced by the Washington Fair Trade Coalition — a local assemblage “committed to creating a fair, balanced, and sustainable global trading system”.

A loss of 59,000 jobs would be a serous hit on the state’s labor force – almost 2 percent. A little sleuthing with the help of one of the op-ed authors indicates that this number was actually estimated by Public Citizen, a national “non-partisan” advocacy organization.

The number seems to have been simply produced by assigning current jobs in several manufacturing sub-sectors (transportation equipment, metal products, electronic equipment, motor vehicle/parts, textiles, wearing apparel) to our state's congressional districts and then summing to get a state total. But the data describes these as "at risk" and "vulnerable" and not "lost" jobs. And there is no indication that jobs “gained” were considered.

To make matters worse, the Public Citizen analyses appear to pre-date the Obama administration's successful efforts at the end of last year to negotiate a better outcome for the U.S. auto industry.

The moral of the story?

We live at a time of unprecedented access to information. This presents a problem for citizens who want to weigh in on public policy and are conscientious seekers of the truth. There isn’t much time in this busy world to separate fact from fiction - especially for job seekers.

So there is an important responsibility that should weigh on all organizations active in the public forum to get their set of facts right. This doesn’t mean setting aside political agenda, but it does mean clearly stating the assumptions on which estimates are based. It also means accurately describing the results; that whatever a job “at risk” is, it’s not a job “lost.”


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About the Authors & Contributors

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Dick Nelson

Dick Nelson is a former Washington State legislator. He currently contributes to the public debate on state and local fiscal issues through research and commentary. As when he was in the legislature, he prefers the Democratic Party.