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Trade Adjustment Assistance: Welfare and Incentive Effects of Payments to Displaced Workers

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  • James A. Brander
  • Barbara J. Spencer

Abstract

We analyze the welfare effects of conditional trade adjustment assistance (i.e. assistance that is received only if displaced workers remain unemployed), and compare the conditional program with unconditional assistance. Taking the level of assistance as exogenous, we show that either the conditional or unconditional program may impose greater efficiency costs, depending on underlying parameters. We then introduce an explicit social welfare function and solve for the optimal level of assistance for each program. Finally, we compare the optimized values of the two programs. If the distribution of wage offers is uniform, the unconditional program is welfare superior.

Suggested Citation

  • James A. Brander & Barbara J. Spencer, 1989. "Trade Adjustment Assistance: Welfare and Incentive Effects of Payments to Displaced Workers," NBER Working Papers 3071, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:3071 Note: ITI IFM
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    References listed on IDEAS

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    1. Feldstein, Martin & Poterba, James, 1984. "Unemployment insurance and reservation wages," Journal of Public Economics, Elsevier, pages 141-167.
    2. Feldstein, Martin & Poterba, James, 1984. "Unemployment insurance and reservation wages," Journal of Public Economics, Elsevier, pages 141-167.
    3. Blau, David M. & Robins, Philip K., 1986. "Job search, wage offers, and unemployment insurance," Journal of Public Economics, Elsevier, pages 173-197.
    4. Bhagwati, Jagdish N. & Brecher, Richard A. & Srinivasan, T. N., 1984. "DUP activities and economic theory," European Economic Review, Elsevier, vol. 24(3), pages 291-307, April.
    5. Clarete, Ramon L. & Whalley, John, 1987. "Comparing the marginal welfare costs of commodity and trade taxes," Journal of Public Economics, Elsevier, pages 357-362.
    6. Ballard, Charles L & Shoven, John B & Whalley, John, 1985. "General Equilibrium Computations of the Marginal Welfare Costs of Taxes in the United States," American Economic Review, American Economic Association, vol. 75(1), pages 128-138, March.
    7. Stuart, Charles E, 1984. "Welfare Costs per Dollar of Additional Tax Revenue in the United States," American Economic Review, American Economic Association, vol. 74(3), pages 352-362, June.
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    Citations

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    Cited by:

    1. Feenstra, Robert C. & Lewis, Tracy R., 1994. "Trade adjustment assistance and Pareto gains from trade," Journal of International Economics, Elsevier, pages 201-222.
    2. Feestra, R.C. & Lewis, T.R. & Mcmillan, J., 1989. "Designing Policies To Open Trade," Papers 349, California Davis - Institute of Governmental Affairs.
    3. Carl Davidson & Steven J. Matusz, 2006. "Trade Liberalization And Compensation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 47(3), pages 723-747, August.
    4. Kletzer, Lori, 2003. "Trade-related Job Loss and Wage Insurance: A Synthetic Review," Santa Cruz Center for International Economics, Working Paper Series qt27w182ht, Center for International Economics, UC Santa Cruz.
    5. Hanson, Kenneth & Burfisher, Mary E. & Hopkins, Jeffrey W. & Somwaru, Agapi, 2004. "Global Agricultural Reform And U.S. Agricultural Adjustment Capacity," 2004 Annual meeting, August 1-4, Denver, CO 20348, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    6. Ethier, Wilfred J., 2001. "Theoretical problems in negotiating trade liberalization," European Journal of Political Economy, Elsevier, vol. 17(2), pages 209-232, June.
    7. Paul R. Bergin & Reuven Glick, 2017. "Tradability, Productivity, and International Economic Integration," World Scientific Book Chapters,in: International Macroeconomic Interdependence, chapter 9, pages 249-284 World Scientific Publishing Co. Pte. Ltd..
    8. Frank Barry & Joe Durkan, 1996. "Team Aer Lingus and Irish Steel: An Application of the Declining High-Wage Industries Literature," Open Access publications 10197/5743, School of Economics, University College Dublin.
    9. Saint-Paul, Gilles, 2007. "Making sense of Bolkestein-bashing: Trade liberalization under segmented labor markets," Journal of International Economics, Elsevier, pages 152-174.
    10. Sanjay Jain, 2017. "Worker retraining and transfer payments: The political economy of social protection," WIDER Working Paper Series 044, World Institute for Development Economic Research (UNU-WIDER).
    11. Priya Ranjan, 2014. "Globalization, Jobs, and Welfare: The Roles of Social Protection and Redistribution," Working Papers 141507, University of California-Irvine, Department of Economics.
    12. Lake, James & Millimet, Daniel L., 2016. "An empirical analysis of trade-related redistribution and the political viability of free trade," Journal of International Economics, Elsevier, pages 156-178.
    13. Rossana Patrón, 2000. "Effects from trade with heterogeneous workers and minimum wages: numerical exercises," Documentos de Trabajo (working papers) 1700, Department of Economics - dECON.
    14. Daichi Shimamoto & Yasuyuki Todo, 2015. "Economic and Political Networks and Firm Openness: Evidence from Indonesia," Working Papers 1512, Waseda University, Faculty of Political Science and Economics.
    15. Priya Ranjan, 2014. "Globalization, Jobs, and Welfare: The Roles of Social Protection and Redistribution," Working Papers 141507, University of California-Irvine, Department of Economics.
    16. Ranjan, Priya, 2016. "Globalization and risk averse workers: The roles of labor market and trade policies," Journal of International Economics, Elsevier, pages 64-79.
    17. repec:smu:ecowpa:1405 is not listed on IDEAS
    18. Davidson, Carl & Matusz, Steven J. & Nelson, Douglas R., 2007. "Can compensation save free trade?," Journal of International Economics, Elsevier, pages 167-186.
    19. Magee, Christopher, 2003. "Endogenous tariffs and trade adjustment assistance," Journal of International Economics, Elsevier, pages 203-222.
    20. Gray, David, 1996. "How unemployable are displaced manufacturing workers?: An analysis of adjustment costs and supplemental adjustment assistance benefits in France," European Journal of Political Economy, Elsevier, vol. 12(4), pages 685-708, December.
    21. Kletzer, Lori, 2003. "Trade-related Job Loss and Wage Insurance: A Synthetic Review," Santa Cruz Department of Economics, Working Paper Series qt27w182ht, Department of Economics, UC Santa Cruz.

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