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.

*Published: Journal of Internationl Economics, vo. 36, no. 3/4, May 1994, pp. 239

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