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Compensating the losers of free trade


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


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.

Suggested Citation

  • Zareh Asatryan & Sebastian Braun & Wolfgang Lechthaler & Mariya Mileva & Catia Montagna, 2014. "Compensating the losers of free trade," WWWforEurope Working Papers series 63, WWWforEurope.
  • Handle: RePEc:feu:wfewop:y:2014:m:6:d:0:i:63

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    1. repec:feu:wfedel:y:2016:m:2:d:0:i:11 is not listed on IDEAS
    2. repec:feu:wfedel:y:2016:m:2:d:0:i:12 is not listed on IDEAS
    3. Karl Aiginger, 2016. "New Dynamics for Europe: Reaping the Benefits of Socio-ecological Transition. Synthesis Report Part I," WWWforEurope Deliverables series 11, WWWforEurope.
    4. Gunther Tichy, 2015. "Protecting social inclusion and mobility in a low growth scenario," WWWforEurope Working Papers series 100, WWWforEurope.

    More about this item


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

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F20 - International Economics - - International Factor Movements and International Business - - - General
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • J60 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - General

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