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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

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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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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
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Handle: RePEc:cpr:ceprdp:435

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

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  1. Michelle P. Connolly & Diego Valderrama, 2005. "North-South technological diffusion and dynamic gains from trade," Working Papers in Applied Economic Theory 2004-24, Federal Reserve Bank of San Francisco. [Downloadable!]
  2. 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. [Downloadable!]
  3. Grether, Jean-Marie & de Melo, Jaime & Olarreaga, Marcelo, 1999. "Who determines Mexican trade policy?," Policy Research Working Paper Series 2187, The World Bank. [Downloadable!]
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  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. [Downloadable!]
  5. Morkre, Morris & Tarr, David G., 1993. "Reforming Hungarian agricultural trade policy : a quantitative evaluation," Policy Research Working Paper Series 1185, The World Bank. [Downloadable!]
    Other versions:
  6. Madani, Dorsati & Olarreaga, Marcelo, 2002. "Politically optimal tariffs : an application to Egypt," Policy Research Working Paper Series 2882, The World Bank. [Downloadable!]
  7. 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. [Downloadable!]
    Other versions:
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