THIS CHAPTER describes the range of policy instruments that can be used to aid trade-affected workers, the effectiveness of those instruments, and the appropriate timing for their use. Because compensation programs can substantially reduce the costs borne by workers, they can be important tools for reducing opposition to trade-liberalizing agreements.
Clearly, the more effective are the compensation programs, the more likely they are to reduce the negative effects of trade liberalization and improve the chances such actions are taken. Knowing which policy instruments are most effective allows policymakers to maximize the value of any given amount spent on aid and to minimize the cost of compensation designed to win over enough votes to gain passage of trade legislation.
Another use for knowledge about the cost-effectiveness of compensation programs is to estimate whether on balance trade legislation is beneficial. Even if the net costs imposed on workers by a trade bill were far lower than the net gains, the cost of distributing the compensation could be so great that the net cost of the legislation would be greater than its benefits.
Why have compensation programs not been an effective vehicle for gaining wider acceptance of expanding and even maintaining free trade? One central problem is accurately apportioning harm across each factor that