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Trade Liberalization and Compensation

Author

Listed:
  • 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.

Suggested Citation

  • Carl Davidson & Steven Matusz, 2005. "Trade Liberalization and Compensation," International Trade 0503008, University Library of Munich, Germany.
  • Handle: RePEc:wpa:wuwpit:0503008
    Note: Type of Document - pdf; pages: 46. 46 pages, PDF file
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    References listed on IDEAS

    as
    1. 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.
    2. 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.
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    More about this item

    Keywords

    International Trade; Liberalization; Compensation; Labor Market Policies;
    All these keywords.

    JEL classification:

    • F1 - International Economics - - Trade
    • F2 - International Economics - - International Factor Movements and International Business

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