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Compensating the losers of free trade

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  • Zareh Asatryan
  • Sebastian Braun
  • Wolfgang Lechthaler
  • Mariya Mileva
  • Catia Montagna
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    Abstract

    Fears of rising wage inequality and job loss loom large in current debates on free trade. Surprisingly, however, there exists little academic research on how to compensate those who lose from free trade. This policy paper reviews the existing theoretical literature on trade and compensation, and derives guidelines on how to design compensation schemes in practice. The existing theoretical literature suggests that active labour market policies, targeted to workers who lose from free trade, are a promising way of compensation. In line with this theoretical recommendation, we find that countries open to free trade also spend more on active labour market policies.

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    Bibliographic Info

    Paper provided by WWWforEurope in its series WWWforEurope Working Papers series with number 63.

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    Length: 35
    Date of creation: Jun 2014
    Date of revision:
    Publication status: published
    Handle: RePEc:feu:wfewop:y:2014:m:6:d:0:i:63

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    Postal: WWWforEurope Project Office Austrian Institute of Economic Research Arsenal Objekt 20 A-1030 Vienna
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    Related research

    Keywords: Challenges for welfare system; Globalisation; Labour markets; Policy options; Welfare state;

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    15. Desjonqueres, Thibaut & Machin, Stephen & Van Reenen, John, 1999. " Another Nail in the Coffin? Or Can the Trade Based Explanation of Changing Skill Structures Be Resurrected?," Scandinavian Journal of Economics, Wiley Blackwell, vol. 101(4), pages 533-54, December.
    16. Dixit, Avinash & Norman, Victor, 1986. "Gains from trade without lump-sum compensation," Journal of International Economics, Elsevier, vol. 21(1-2), pages 111-122, August.
    17. Katherine Baicker & Marit M. Rehavi, 2004. "Policy Watch: Trade Adjustment Assistance," Journal of Economic Perspectives, American Economic Association, vol. 18(2), pages 239-255, Spring.
    18. Daniel Kopasker & Holger Görg & Hassan Molana & Catia Montagna, 2013. "Negative Shocks, Job Creation, and Selection," WWWforEurope Working Papers series 11, WWWforEurope.
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