Wednesday, 3 December 2014

An independent US study predicts EU job losses and pay cuts if TTIP is agreed

A new working paper by Jeronim Capaldo* from the Global Development and Environment Institute (GDAE) at Tufts University, Medford, Massachusetts predicts European disintegration, unemployment and instability if the Transatlantic Trade and Investment Partnership (TTIP) between the US and the EU is implemented.
This study, which uses a different economic model from the four previously published studies,** foresees significant negative economic effects on EU countries.

It forecasts that TTIP would cause:

600,000 EU jobs to be lost.  Northern European countries would be the most affected (-223,000 jobs), followed by Germany (-134,000 jobs), France (-130,000 jobs) and Southern European countries (-90,000).

Pay cuts across the EU.  France, the worst hit, would lose 5,500 Euros per worker, whilst the UK and other northern European countries would lose between 4,200 and 4,800 Euros per worker respectively.

Net losses of GDP.  After a decade, Northern European countries will lose 0.50%, France 0.48% and Germany 0.29% of their GDP.

A reduction in net exports from EU countries - by 2.07% of GDP for northern European countries, by 1.9% for France, by 1.14% for Germany and the UK by 0.95%.

A loss of government revenues across the EU, with France suffering the largest loss at 0.64% of GDP.

Quoting from Capaldo’s paper, further effects of TTIP would be:

 “A reduction of the labour share (the share of total income accruing to workers), reinforcing a trend that has contributed to the current stagnation in Europe. The flipside of this projected decrease is an increase in the share of profits and rents, indicating that proportionally there would be a transfer of income from labour to capital. The largest transfers will take place in UK (7% of GDP transferred from labour to profit income), France (8%), Germany and Northern Europe (4%)”.

The working paper also suggests that:

“TTIP would lead to higher financial instability and the accumulation of imbalances. With export revenues, wage shares and government revenues decreasing, demand would have to be sustained by profits and investment. But with flagging consumption growth, profits cannot be expected to come from growing sales. A more realistic assumption is that profits and investment (mostly in financial assets) will be sustained by growing asset prices. The potential for macroeconomic instability of this growth strategy is well known after the recent financial crisis”.

The assumptions behind the economic models
The four previous studies, including the two financed by the EU Commission, all used similar Computable General Equilibrium (CGE) models. The CGE economic model incorporates the assumption that, as trade barriers are reduced, uncompetitive sectors exposed to higher competition will shrink and shed labour; but then this labour will be quickly re-employed in more competitive sectors. 

In practice this does not allow for the specialisation of skills and consequent re-training needs, for example, an assembly line worker in a manufacturing plant would not easily be able to transfer to working in IT, even if he or she was prepared to accept a much lower salary. What has been found to happen is that, whilst uncompetitive sectors contract quickly, more competitive sectors expand slowly, thus leaving many individuals unemployed.

Unlike the other four studies, Capaldo’s working paper uses the UN Global Policy Model (GPM), which is more sophisticated in terms of its assumptions and is based on a global database of consistent economic data. The GPM also allows researchers to estimate the effect that TTIP will have on trade with countries outside the US-EU bloc, whilst the CGE model can only consider bilateral effects between the US and the EU. This could be important, for example when a sector shrinks in the EU and its output is replaced by imports from lower cost countries not signed up to the treaty.

This study goes a step further
Previous studies on TTIP have focused on the impact that the agreement would have on total economic activity in member countries. They have done so based on detailed sector by sector analyses of TTIP economies, but they have neglected the impact of income distribution and other important dimensions of macroeconomic adjustment.
To quote from the paper:

“Our simulation does not question the impact of TTIP on total trade flows estimated by existing studies. Rather it goes a step further and analyzes their implications in terms of net exports, GDP, government finance, and income distribution.

Our analysis points to several major results.

Firstly, TTIP would have a negative net effect on the EU. We find that a large expansion of the volume of trade in TTIP countries is compatible with a net reduction of trade-related revenues for the EU. This would lead to net losses in terms of GDP and employment. We estimate that almost 600,000 jobs would be lost as a result of TTIP.

Secondly, TTIP would reinforce the downward trend of the labour share of GDP, leading to a transfer of income from wages to profits with adverse social and economic consequences. Policymakers would face a few options to deal with this demand gap. Our model suggests that asset price inflation or devaluation could result, leading to higher economic instability.”


Sign the Petition for the European Citizens Initiative to Stop TTIP
So as well as preparing, under the ISDS clauses in TTIP, to hand over to multinational companies the rights of our democratic institutions to make laws, regulations and decisions, our political leaders are negotiating a treaty which risks leading to a reduction of GDP for EU countries, lower exports, lower pay, lower government incomes and resulting financial and social instability in the EU!

Help to oppose this madness by supporting the European Citizens Initiative (ECI) to Stop TTIP and the Canadian treaty CETA. 

This ECI is important because it not only calls on the EU Commission to stop the TTIP negotiations but also not to ratify CETA, under which US companies can sue EU governments, via their Canadian subsidiaries for loss of potential profits, if they can show that the EU has a more restrictive legislative or regulatory regime than Canada.

The ECI now has nearly a million signatures but the EU rules require a certain minimum number from each country so please sign up now. 
Sign the petition here.

*Jeronim Capaldo is a Research Fellow with GDAE's Globalization and Sustainable Development Program. He is currently working as an econometrician with the International Labour Organization in Geneva. Before joining GDAE he was a member of the modelling and forecasting team at UNDESA, where he was responsible for Latin America and the Caribbean and for the analysis of global employment. Previously, at FAO he analyzed t     he economic effects of climate change in Africa and Central America. Jeronim earned a Laurea cum laude in economics from the University of Rome “La Sapienza” and is currently a PhD candidate in economics at the New School for Social Research. His current research focuses on global macroeconomic models applied to trade and fiscal policy.

**Ecorys (2009), CEPR (2013), CEPII (2013) and Bertelsmann Stiftung (2013)