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Do Labor Issues Matter in the Determination of U.S. Trade Policy? An Empirical Reevaluation

Author

Listed:
  • Xenia Matschke

    (University of Connecticut)

  • Shane M. Sherlund

    (Federal Reserve Board)

Abstract

Some recent empirical studies, motivated by Grossman and Helpman's (1994) "protection for sale" model, suggest that very few factors (none of them labor-related) determine trade protection. This paper reexamines the roles that labor issues play in the determination of trade policy. We introduce collective bargaining, differences in labor mobility across industries, and trade union lobbying into the protection-for-sale model and show that the equilibrium protection rate in our model depends upon these labor market variables. In particular, our model predicts that trade protection is structurally higher than in the original protection-for-sale model if the trade union of a sector lobbies but capital owners do not, because union workers collect part of the protection rents; equilibrium protection is lower if capital owners lobby but the trade union does not, because part of the protection rents is dissipated to workers. Using data from U.S. manufacturing, we find that collective bargaining, differences in labor mobility across industries, and trade union lobbying indeed play important roles in the determination of U.S. trade policy.

Suggested Citation

  • Xenia Matschke & Shane M. Sherlund, 2004. "Do Labor Issues Matter in the Determination of U.S. Trade Policy? An Empirical Reevaluation," Working papers 2004-36, University of Connecticut, Department of Economics, revised May 2005.
  • Handle: RePEc:uct:uconnp:2004-36
    Note: We thank the editor David Card and two anonymous referees for helpful comments that greatly improved this paper. We also thank Scott Taylor for his valuable comments and advice and Kishore Gawande, Thomas Osang and Daniel Trefler for providing data. We are grateful to Bob Baldwin, Kishore Gawande, Bruce Hansen, Phil McCalman, Thomas Osang, Bob Staiger, Gautam Tripathi and participants at numerous seminars for helpful comments and suggestions. Ellen Dykes and Jonas Robison are thanked for their help with editing. Xenia Matschke gratefully acknowledges financial support from a Deutsche Forschungsgemeinschaft research fellowship. This paper represents the views of the authors and does not necessarily represent the views of the Federal Reserve System, its members, or its staff.
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    References listed on IDEAS

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    1. Kishore Gawande & Usree Bandyopadhyay, 2000. "Is Protection for Sale? Evidence on the Grossman-Helpman Theory of Endogenous Protection," The Review of Economics and Statistics, MIT Press, vol. 82(1), pages 139-152, February.
    2. Baldwin, Robert E & Magee, Christopher S, 2000. "Is Trade Policy for Sale? Congressional Voting on Recent Trade Bills," Public Choice, Springer, vol. 105(1-2), pages 79-101, October.
    3. Theo Eicher & Thomas Osang, 2002. "Protection for Sale: An Empirical Investigation: Comment," American Economic Review, American Economic Association, vol. 92(5), pages 1702-1710, December.
    4. Jeffrey M Wooldridge, 2010. "Econometric Analysis of Cross Section and Panel Data," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262232588, March.
    5. B. Douglas Bernheim & Michael D. Whinston, 1986. "Menu Auctions, Resource Allocation, and Economic Influence," The Quarterly Journal of Economics, Oxford University Press, vol. 101(1), pages 1-31.
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    7. Grossman, Gene M & Helpman, Elhanan, 1994. "Protection for Sale," American Economic Review, American Economic Association, vol. 84(4), pages 833-850, September.
    8. Clinton Shiells & Robert Stern & Alan Deardorff, 1989. "Estimates of the elasticities of substitution between imports and home goods for the United States: Reply," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 125(2), pages 371-374, June.
    9. Matschke, Xenia N., 2004. "Labor Market Rigidities And The Political Economy Of Trade Protection," Santa Cruz Department of Economics, Working Paper Series qt2274x2pn, Department of Economics, UC Santa Cruz.
    10. Maggi, Giovanni & Rodriguez-Clare, Andres, 2000. "Import penetration and the politics of trade protection," Journal of International Economics, Elsevier, vol. 51(2), pages 287-304, August.
    11. Gawande, Kishore, 1997. "Generated regressors in linear and nonlinear models," Economics Letters, Elsevier, vol. 54(2), pages 119-126, February.
    12. Giovanni Maggi & Pinelopi Koujianou Goldberg, 1999. "Protection for Sale: An Empirical Investigation," American Economic Review, American Economic Association, vol. 89(5), pages 1135-1155, December.
    13. Krueger, Alan B & Summers, Lawrence H, 1988. "Efficiency Wages and the Inter-industry Wage Structure," Econometrica, Econometric Society, vol. 56(2), pages 259-293, March.
    14. MaCurdy, Thomas E & Pencavel, John H, 1986. "Testing between Competing Models of Wage and Employment Determination in Unionized Markets," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages 3-39, June.
    15. Rodrik, Dani, 1995. "Political economy of trade policy," Handbook of International Economics,in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 28, pages 1457-1494 Elsevier.
    16. Amemiya, Takeshi, 1979. "The Estimation of a Simultaneous-Equation Tobit Model," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 20(1), pages 169-181, February.
    17. Gaston, Noel & Trefler, Daniel, 1995. "Union wage sensitivity to trade and protection: Theory and evidence," Journal of International Economics, Elsevier, vol. 39(1-2), pages 1-25, August.
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    More about this item

    Keywords

    Trade protection; protection for sale; labor market;

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions

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