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Industrial Policy in the Presence of Wage Distortion: The Case of the US Auto and Steel Industries

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  • de Melo, Jaime
  • Tarr, David

Abstract

This paper examines the welfare effects of protection in two sectors characterized by high wage premia, autos and steel, to determine if protection is justified to correct for the labor misallocation due to wage premia. If wage premia are exogenous, under most product market structures, labor misallocation is too small to justify protection. More importantly, we argue that due to union influence in autos and steel, the wage premium is endogenous. If this is the case, then wage premia may even exacerbate the welfare costs of protecti.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 435.

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Date of creation: Jul 1990
Date of revision:
Handle: RePEc:cpr:ceprdp:435

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Related research

Keywords: Protectionism; Trade Policy; Unions; Wage Premium;

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Cited by:
  1. de Melo, Jaime & Tarr, David, 1991. "VERs under imperfect competition and foreign direct investment : a case study of the U.S. - Japan auto VER," Policy Research Working Paper Series 667, The World Bank.
  2. Grether, Jean-Marie & de Melo, Jaime & Olarreaga, Marcelo, 2001. "Who determines Mexican trade policy?," Journal of Development Economics, Elsevier, vol. 64(2), pages 343-370, April.
  3. Rutherford, Thomas F. & Tarr, David G., 2002. "Trade liberalization, product variety and growth in a small open economy: a quantitative assessment," Journal of International Economics, Elsevier, vol. 56(2), pages 247-272, March.
  4. Jensen, Jesper & Tarr, David, 2002. "Trade, foreign exchange, and energy policies in the Islamic Republic of Iran : reform agenda, economic implications, and impact on the poor," Policy Research Working Paper Series 2768, The World Bank.
  5. Phillip Swagel, 1993. "Union behavior, industry rents, and optimal policies," International Finance Discussion Papers 459, Board of Governors of the Federal Reserve System (U.S.).
  6. de Melo, J. & Tarr, D., 1994. "VERs Under Imperfect Competition and Foreing Direct Investment: A Case study of the US-Japan Auto VER," Research Papers by the Department of Economics, University of Geneva 94.09, Département des Sciences Économiques, Université de Genève.
  7. Morris Morkre & David Tarr, 1995. "Reforming Hungarian agricultural trade policy: A quantitative evaluation," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 131(1), pages 106-131, March.
  8. Rutherford, Thomas F. & Tarr, David G., 1998. "Trade liberalization and endogenous growth in a small open economy : a quantitative assessment," Policy Research Working Paper Series 1970, The World Bank.
  9. Madani, Dorsati & Olarreaga, Marcelo, 2002. "Politically optimal tariffs : an application to Egypt," Policy Research Working Paper Series 2882, The World Bank.

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