Unemployment Benefits as Redistribution Scheme for Trade Gains - A Positive Analysis

Marco de Pinto ()
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Marco de Pinto: Institute for Labour Law and Industrial Relations in the EU, University of Trier

No 201204, IAAEU Discussion Papers from Institute of Labour Law and Industrial Relations in the European Union (IAAEU)

Abstract: Trade liberalization is no Pareto-improvement - there are winners (high-skilled) and losers (low-skilled). To compensate the losers the government is assumed to introduce unemployment benefits (UB). These benefits are financed by either a wage tax, a payroll tax, or a profit tax. Using a Melitz-type model of international trade with unionized labour markets and heterogeneous workers we show that: (i) there is a threshold level of UB where all trade gains are destroyed, (ii) this threshold differs between different kind of taxes, (iii) there is a clearcut ranking in terms of welfare for the chosen funding of the UB: 1. wage tax, 2. profit tax, 3. payroll tax.

Keywords: trade liberalization; heterogeneous firms; trade unions; skill-specific unemployment; unemployment benefits; taxes (search for similar items in EconPapers)
JEL-codes: F1 F16 H2 (search for similar items in EconPapers)
Date: 2012-10
New Economics Papers: this item is included in nep-lab
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:iaa:dpaper:201204

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