Background

Most experts and policy makers agree that it is important to make globalization more inclusive and that adjustment policies have an important role to play in this context. Adjustment policies help promote economic efficiency and assist those adversely affected by economic change. Moreover, inattention to the adjustment pressures resulting from intensified import competition may allow any existing labour market rigidities to become entrenched, which may also undermine public support for trade. Mitigating adjustment costs can help alleviate some of the resulting negative perceptions toward trade and make trade openness more socially and politically sustainable.

At the same time, challenges arising from trade liberalization resemble those due to technological improvement. Both bring net benefits, but at the same time generate similar worker adjustment costs that can be long-lasting for some workers and communities if not properly addressed. Given the similarities of their impacts, and difficulties in disentangling the effects of these shocks, policies should be aimed at mitigating shocks regardless of the source, whether trade, technology, or other market dynamics.