Congress also has enacted targeted adjustment assistance programs to provide training and other assistance to help workers and firms that may be dislocated by greater market opening adjust to new economic opportunities. This report discusses the models used to estimate the employment effects of the agreement and their various assumptions, necessary in order for the model to generate results. Invariably, these assumptions determine to some extent the results that are generated and, therefore, limit their representation of the real world economy. U.S. International Trade Commission (USITC): U.S-Korea Free Trade Agreement Potential Economy-wide and Selected Sectoral Effects The University of Michigan: Economic Effects of a Korea-U.S. Free Trade Agreement U.S.-Korea Business Council: Failure to Implement the U.S.-Korea Free Tr ade Agreement: The Cost for American Workers and Companies Economic Policy Institute (EPI): Trade Policy and Job Loss: U.S. Trade Deals with Colombia and Korea Will be Costl y
In addition, two other estimates, derived by the USITC and released by the Obama Administration and the Majority Staff of the Senate Finance Committee Trade Subcommittee, are reported. Congress has demonstrated an ongoing interest in concluding trade agreements to eliminate and reduce barriers to U.S. trade in goods, services, and agriculture, and it has assumed a direct role in assessing the impact of trade agreements on the U.S. economy. Estimating Employment Effects of Trade Agreements

Although discussions of trade agreements often focus on potential employment gains or losses, most economists argue that such employment estimates represent a partial accounting of the total economic effects of trade agreements and, therefore, do not perform well as an indicator of the overall impact of the agreement on the economy. However, this lack of precision may be an issue when the models are used to estimate the effects of bilateral trade agreements where the overall amount of trade and, therefore, the impact of the agreement, is expected to be less than that of a comprehensive multilateral agreement. Movements in exchange rates, however, could have an important impact on trade patterns that involve countries that are parties to a bilateral trade agreement. The estimates range from 280,000 jobs gained to a loss of 159,000 jobs if the United States does adopt the agreement. As a result of these actions, some firms expand, while others contract. Throughout this process, however, the total number of jobs in the U.S. economy is not affected, that is, trade agreements do not affect the total number of jobs in a large open economy such as the U.S. economy, but can affect the composition of employment. For the United States, international trade is not the primary force creating employment in the economy. Also, U.S. trade with South Korea is about one-fourth that of U.S. trade with Mexico, and the United States and South Korea do not share a common border as is the case between the United States and Mexico. In addition, the ITA estimates relate to the average number of jobs supported by exports across a broad section of the economy and should not be used in conjunction with trade agreements where the approach should more appropriately focus on estimating the change in the composition of employment that are associated with a change in trade as a result of a trade agreement. As this reports indicates, the most important assumption involved in generating estimates of the impact of the KORUS-FTA on employment appears to be the expected level of labor utilization in the U.S. economy over the ten-year phase-in period expected to be required to fully implement the KORUS-FTA. Such an assumption often is necessary in order to generate results from the economic models.
The Obama Administration finalized negotiations with South Korea in early December 2010 on a bilateral free trade agreement. Congress passed the implementing legislation for the U.S.-South Korea free trade agreement on October 21, 2011 (P.L. 112-42). Congress not only plays a direct role in approving legislation that implements the provisions of free trade agreements, but also authorizes and appropriates funding for programs that are meant to provide special assistance to firms and workers that are dislocated as a result of lower barriers to trade. Since the agreement with South Korea covers a wide range of trade and investment issues, it could have substantial economic implications for both the United States and South Korea. South Korea is the seventh-largest trading partner of the United States, and the United States is South Korea's third-largest trading partner.
Similar to other trade agreements, the U.S.-South Korea Free Trade Agreement (KORUS FTA) attracted both supporters and detractors, primarily over the impact the agreement could have on employment in the economy. Supporters argued that the agreement could create as many as 280,000 jobs in the economy. Others, however, argued that the agreement could lead to an overall loss of up to 159,000 jobs in various sectors of the economy. Still others contended that the United States could stand to lose exports, employment, and extended economic opportunities if it failed to sign a trade agreement, while the European Union and other nations were lining up to finalize similar agreements with South Korea.
Estimating the economic impact of trade agreements, however, is a daunting task, due to a lack of data and important theoretical and practical matters associated with generating results from economic models. In addition, such estimates provide an incomplete accounting of the total economic effects of trade agreements. This report assesses the results of a number of models used to generate estimates of the effect of the KORUS FTA on employment. These studies were chosen specifically because they estimate (or can be used to estimate) data on employment effects of the trade agreement. All economic models incorporate various assumptions that are necessary in order for the model to generate results. Invariably, these approaches determine, to some extent, the results that are generated and, therefore, limit their representation of the real world economy. Currently, the various models produce widely disparate estimates of the number of jobs affected by the trade agreement, reflecting the various assumptions that are used in the models and differences in the approaches.
From the perspective of a large open economy such as the U.S. economy, international trade is not a major determinate of total employment in the economy, real wages in the economy, or the overall level of production. This is especially true for bilateral trade agreements with individual countries where the impact on the economy as a whole is expected to be small. Nevertheless, some sectors of the economy are likely to be affected more than others. Congress has demonstrated an ongoing interest in assessing the economic impact of trade agreements and, at times, has provided assistance to those workers and firms that are disproportionately affected.