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

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Author Info

  • Melo, J. de
  • Tarr, D.

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 Institut d'Economie et Econométrie, Université de Genève in its series Research Papers by the Institute of Economics and Econometrics, Geneva School of Economics and Management, University of Geneva with number 93.17.

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Length: 31 pages
Date of creation: 1993
Date of revision:
Handle: RePEc:gen:geneem:93.17

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Keywords: wages ; industrial structure ; industrial policy;

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Cited by:
  1. Phillip Swagel, 1996. "Union Behavior, Industry Rents, and Optimal Policies," IMF Working Papers 96/143, International Monetary Fund.
  2. 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.
  3. de Melo, Jaime & Grether, Jean-Marie & Olarreaga, Marcelo, 1999. "Who Determines Mexican Trade Policy?," CEPR Discussion Papers 2176, C.E.P.R. Discussion Papers.
  4. Madani, Dorsati & Olarreaga, Marcelo, 2002. "Politically optimal tariffs : an application to Egypt," Policy Research Working Paper Series 2882, The World Bank.
  5. de Melo, Jaime & Tarr, David, 1995. "VERs Under Imperfect Competition and Foreign Direct Investment: A Case Study of the US-Japan Auto VER," CEPR Discussion Papers 1173, C.E.P.R. Discussion Papers.
  6. 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.
  7. 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.
  8. 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.

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