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

Author

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  • Melo, J. de
  • Tarr, D.

Abstract

This paper examines the welfare effects of protection in two high wage premia sectors—autos and steel—to determine if protection is justified to correct for the labor misallocation due to the wage premia. If wage premia are exogenous, under most product market structures, labor misallocation is too small to justify protection. More importantly, due to union influence in autos and steel, the wage premium is endogenous. Then wage premia may even exacerbate the welfare costs of protection. With increasing returns to scale and firm entry optimal policies may be reversed, so further caution must be exercised.
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Suggested Citation

  • Melo, J. de & Tarr, D., 1993. "Industrial Policy in the Presence of Wage Distorsions: The Case of the US Auto and Steel Industries," Research Papers by the Institute of Economics and Econometrics, Geneva School of Economics and Management, University of Geneva 93.17, Institut d'Economie et Econométrie, Université de Genève.
  • Handle: RePEc:gen:geneem:93.17
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    Cited by:

    1. 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.
    2. Jaime de Melo & David Tarr, 2015. "VERs under imperfect competition and foreign direct investment: A case study of the US–Japan auto VER," World Scientific Book Chapters,in: Modeling Developing Countries' Policies in General Equilibrium, chapter 22, pages 461-483 World Scientific Publishing Co. Pte. Ltd..
    3. Morris Morkre & David Tarr, 2014. "Reforming Hungarian Agricultural Trade Policy: A Quantitative Evaluation," World Scientific Book Chapters,in: APPLIED TRADE POLICY MODELING IN 16 COUNTRIES Insights and Impacts from World Bank CGE Based Projects, chapter 3, pages 49-74 World Scientific Publishing Co. Pte. Ltd..
    4. Swagel, Phillip, 2000. "Union behavior, industry rents, and optimal policies," International Journal of Industrial Organization, Elsevier, vol. 18(6), pages 925-947, August.
    5. repec:wsi:wschap:9789813108448_0017 is not listed on IDEAS
    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. Thomas F. Rutherford & David G. Tarr, 2017. "Trade liberalization, product variety and growth in a small open economy: a quantitative assessment," World Scientific Book Chapters,in: Trade Policies for Development and Transition, chapter 17, pages 389-414 World Scientific Publishing Co. Pte. Ltd..
    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.
    9. Madani, Dorsati & Olarreaga, Marcelo, 2002. "Politically optimal tariffs : an application to Egypt," Policy Research Working Paper Series 2882, The World Bank.

    More about this item

    Keywords

    wages ; industrial structure ; industrial policy;

    JEL classification:

    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • F00 - International Economics - - General - - - General
    • F01 - International Economics - - General - - - Global Outlook
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations

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