Labor Market Institutions and the Second-Best Tariff
Labor market distortions provide a second-best case for protection. However, the implications are less obvious when the product market is imperfectly competitive too, as suggested by several partial equilibrium studies. This paper adopts a general equilibrium approach, combining unionization in labor markets with monopolistic competition in product markets. Two labor market settings are considered: fully centralized wage bargaining ('Scandinavia', for short) and negotiation at the firm level ('Latin America'). The competitive labor market case is used as a benchmark. It is shown that in Latin America the second-best tariff is higher, and the welfare level lower, than in the benchmark case. Scandinavia reaches the first best under free trade. Copyright 1997 by The editors of the Scandinavian Journal of Economics.
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Volume (Year): 99 (1997)
Issue (Month): 2 (June)
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