Electoral Rewards and Punishments for Trade Compensation

Abstract

abstract: When globalization harms a community, voters are expected to demand compensation programs. Why, then, would incumbents fail to provide additional compensation following an economic shock? The authors argue that in addition to offering material assistance, government compensation also informs voters about the costs of globalization, generating consternation in the electorate. As a result, providing compensation can hurt incumbents' electoral prospects. This article studies this consternation effect in the United States during the China shock period (1990–2007). The authors use an administrative instrument for access to the US Trade Adjustment Assistance (taa) program, the longest-standing compensation system for workers displaced by international trade. The analysis shows that compensation electorally backfires when distributed to low-shocked regions in which the informational value of compensation is high. The consternation effect can explain why governments often underinvest in compensation programs.