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Trade Liberalization and Compensation

  • Carl Davidson

    (Michigan State University)

  • Steven Matusz

    (Michigan State University)

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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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
Contact details of provider: Web page: http://128.118.178.162

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  1. Richard Brecher & Eshan Choudhri, 1991. "Pareto Gains from Trade, Reconsidered: Compensating for Job Lost," Carleton Economic Papers 91-16, Carleton University, Department of Economics, revised May 1994.
  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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