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Trade Liberalization and Compensation

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Author Info

  • Carl Davidson

    (Michigan State University)

  • Steven Matusz

    (Michigan State University)

Abstract

Liberalization harms some groups while generating aggregate benefits. We consider various labor market policies that might be used to compensate those who lose from freer trade. Our goal is to find the policy that compensates each group of losers at the lowest cost to the economy. We argue that wage subsidies should be used to compensate those who bear the adjustment costs triggered by liberalization while employment subsidies should be used to compensate those who remain trapped in the previously protected sector. Our analysis indicates that the cost of compensation is low, provided that the right policy is used.

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File URL: http://128.118.178.162/eps/it/papers/0503/0503008.pdf
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Bibliographic Info

Paper provided by EconWPA in its series International Trade with number 0503008.

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Length: 46 pages
Date of creation: 15 Mar 2005
Date of revision:
Handle: RePEc:wpa:wuwpit:0503008

Note: Type of Document - pdf; pages: 46. 46 pages, PDF file
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Web page: http://128.118.178.162

Related research

Keywords: International Trade; Liberalization; Compensation; Labor Market Policies;

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  1. Brecher, Richard A. & Choudhri, Ehsan U., 1994. "Pareto gains from trade, reconsidered : Compensating for jobs lost," Journal of International Economics, Elsevier, vol. 36(3-4), pages 223-238, May.
  2. Brander, James A. & Spencer, Barbara J., 1994. "Trade adjustment assistance : Welfare and incentive effects of payments to displaced workers," Journal of International Economics, Elsevier, vol. 36(3-4), pages 239-261, May.
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