Industrial Policy in the Presence of Wage Distortions: The Case of the US Auto and Steel Industries
Year: 1993
Type: article
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. Copyright 1993 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.
Source: International Economic Review
DOI: 10.2307/2526968
Authors: Jaime De Melo, David Tarr
Language: English
Topic: Global trade and economics
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W2039587449