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Unemployment Benefits as Redistribution Scheme for Trade Gains - A Positive Analysis

  • Marco de Pinto

    ()

    (Institute for Labour Law and Industrial Relations in the EU, University of Trier)

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    Trade liberalization is no Pareto-improvement - there are winners (high-skilled) and losers (low-skilled). To compensate the losers the government is assumed to introduce unemployment benefits (UB). These benefits are financed by either a wage tax, a payroll tax, or a profit tax. Using a Melitz-type model of international trade with unionized labour markets and heterogeneous workers we show that: (i) there is a threshold level of UB where all trade gains are destroyed, (ii) this threshold differs between different kind of taxes, (iii) there is a clearcut ranking in terms of welfare for the chosen funding of the UB: 1. wage tax, 2. profit tax, 3. payroll tax.

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    Paper provided by Institute of Labour Law and Industrial Relations in the European Union (IAAEU) in its series IAAEU Discussion Papers with number 201204.

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    Date of creation: Oct 2012
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    Handle: RePEc:iaa:dpaper:201204
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