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29 October 2014

TTIP and the Jobs Question

Can the EU-US trade deal really deliver the ‘jobs miracle’ Europe needs?

Simon McKeagney, Editor

The promise of more jobs as a result of TTIP has been the most tantalising carrot dangled in front of the general public by proponents of the deal. With Europe still reeling from the damage done by economic crisis, the jobs question, and how to answer it, remains the top priority for many European governments and an ongoing worry for European citizens. But can TTIP really be relied upon as the silver bullet? 

The claims

Outgoing Trade Commissioner Karel De Gucht believes that TTIP “would likely translate into millions of new jobs for our workers.” He has referred to the growth figures forecast in the Commission-funded CEPR Impact Assessment report, which suggests that the EU could benefit by up to 119 billion euro a year under a comprehensive agreement.

While many doubt the viability of a ‘comprehensive’ deal, such figures for growth may not necessarily translate into net gains in employment. Dean Baker, of the U.S based Center for Economic and Policy Research (no relation to CEPR London) has pointed out that: 

‘Implying that a deal that raises GDP by 0.4 or 0.5 percent 13 years out means "job-creating opportunities for workers on both continents" is just dishonest. The increment to annual growth is on the order of 0.03 percentage points. Good luck finding that in the data.’

Many studies produced conflicting numbers during the flurry of interest in mid-2013 when the talks were first announced, but more recently communications from the Commission have downplayed this enthusiasm. According to consumer group BEUC and Friend’s of the Earth, the Commission itself has backed away from one study that predicts more than a million jobs could be created, calling it “unreasonable” and its estimates “unrealistically high”. 

There are also studies which suggest the complete opposite result, including a report released only this month, which indicates that up to 600,000 jobs will be lost in the EU as a direct result of TTIP. Read the full report here

‘Sophisticated guess work’

That the job numbers differ so wildly depending on the study, indicates the difficulty in predicting employment outcomes, and shows that promising so much could come back to haunt the Commission later, if the results prove negative. Johannes Schwarzer writing for the Council on Economic Policies points out that the Commission funded Impact Assessment report …

“…explicitly disregards long-term employment effects. Hence, by definition, the analysis keeps the number of jobs constant and does in no way provide a basis for claims of net employment generation.”

Schwarzer also points to a recent review of TTIP studies by the European Parliamentary Research Service which states:

The regulatory core of TTIP makes it extremely difficult for economists to come to grips with the expected economic meaning of the negotiation outcomes. NTBs [Non-tariff barriers] and mere regulatory heterogeneity create ‘trade costs’ for market access, both ways, but it is exceedingly hard to assess authoritatively what the trade costs are, and what consequences they have, whether for goods or services. Yet, without good proxies of those costs and the scope for their reduction, an empirical economic analysis with proper modeling is basically impossible or mere sophisticated ‘guess’ work.”

Yet, at the same time, while the CEPR study rules out the ability to forecast “net employment creation or destruction”, it does capture the “reallocation of workers” in a post-TTIP EU, admitting that it is likely to bring "prolonged and substantial” dislocation to European workers as a result of its impact on different sectors: "..there will be sectors that will be shedding workers and that the reemployment of these workers in the expanding sectors is not automatic..” (section 5.9.2)

Further analysis on this point by John Hilary of War on Want:

'The CEPR study calculates the level of displacement that TTIP will bring to employment, cited as a percentage of the labour force in the EU and US. Under the ‘ambitious’ scenario for TTIP preferred by EU negotiators, the CEPR reveals that at least 1.3 million European workers will lose their jobs as a direct result of the agreement. In addition, over 715,000 US workers also stand to lose their jobs under this scenario, giving a total of over two million job losses in total.'

Going the other way

Hence, many fear that TTIP is as likely to produce the opposite of its intended goals and may actually add to unemployment in some sectors, rendering any employment gains as negligible. If TTIP aims to drive down costs for consumers and increase competiveness, it is safe to suggest that this would require changes in the labour market, which may not always be positive. 

Globalization scholar Saskia Sassen in a recent Deutsche Welle interview, highlighted the flaws of this “trade miracle”:

‘So yes, the household in a very sort of narrow perspective gains because they pay less, the famous example of this is of course low-cost Chinese imports. But the large question is does the economy in which this household(s) operates also gain so that you have a large shadow effect that is a benefit for a larger complex system rather than the pair of shoes that you buy for less money. And there the figures are negative. So the household may benefit, but it is a very particular and very short-term benefit. And in the long-run the effect can be to lessen the dynamism of an economy to keep it from adding new jobs.’

As the EU and US are saturated markets, adding additional consumption through additional trade is limited. Instead TTIP will rather redirect the flow of existing trade toward transatlantic flows, thereby reducing it in other areas. As we have written, both the developing world and intra-EU trade are likely to suffer as a result.

At the same time, the competitive gains reached through TTIP will be measured in capital and labour. With capital investment at an all time low across the EU, the aim will turn to making labour more productive – i.e, more production with less workers. 

Jobs, at what cost?

Finally, there has been little attention paid to the costs to regions, governments and societies as a result of such a comprehensive deal, and the dangers of putting competitiveness ahead of all other concerns. A report by ÖFSE, the Austrian Foundation for Development Research, released in April this year, analysed four reports on TTIP [Ecorys (2009), CEPR (2013), CEPII (2013) and Bertelsmann/ifo (2013)] in an attempt to answer some of these issues. It found that:

Costs of unemployment, including long term unemployment, might be substantial, especially during the 10 year transition period of TTIP. Based on projected job displacement in one of the studies of 0.4 – 1.1 million, our rough (and conservative) calculation suggests implied costs of €5 – €14 billion for unemployment benefits, excluding costs for re-training and skills-acquisition. In addition, foregone public income from taxes and social contributions from unemployment might accrue to €4 – €10 billion.

This concern is echoed by Dean Baker who notes that…

 …there are reasons to believe the growth effect could go in the opposite direction. The model used by the London CEPR does not assume any negative growth impact from higher prices for drugs or other goods that might be more costly due to stronger patent and copyright protections coming out of the deal.

So what should we think? When the Commission claims that ‘economic growth and increased productivity’ in TTIP will create ‘new job opportunities for high- and low-skilled workers alike’ it is worth taking it with a large grain of salt. No doubt opportunities will be created for increased transatlantic trade, but what we may need to sacrifice in reaching that goal could be substantial. In any rate, the quest for jobs in Europe is unlikely to be answered by TTIP. Don’t let anyone tell you otherwise. 

READ: The Transatlantic Trade and Investment Partnership: European Disintegration, Unemployment and Instability, Global Development and Environment Institute, Tufts University.

Full report here.
Executive summary here.

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Comments

Adrian

The words "intra-EU trade will suffer" and "jobs lost" doesn't sound like anything the EU needs right now.
So, no. Refuse this poisoned chalice and send american corporations flying home.

Miro

Great balanced, fact-based article! Needs to be spread more, as this is still THE #1 selling point for TTIP proponents!

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