NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

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

James A. Brander, Barbara J. Spencer

NBER Working Paper No. 3071
Issued in August 1989
NBER Program(s):   ITI   IFM

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.

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Document Object Identifier (DOI): 10.3386/w3071

Published: Journal of International Economics, vol. 36, no. 3/4, May 1994, pp. 239-261.

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