Do wage distortions justify protection in the U.S. auto and steel industries?

Abstract

This paper models endogenous union-induced labor market distortions in applied general equilibrium. It also investigates systematically the impact of labor market distortions under different market structure assumptions. The paper describes how to model labor market distortions with and without labor union activity and how model economies of scale are modelled and how they represent pricing practices. It describes the data and benchmarking for the counterfactual simulations and reports on the welfare costs of VERs under constant returns to scale and no wagedistortions. It also evaluates the distortionary costs of protection created by VERs both with and without labor market distortions and, with and without imperfectly competitive behavior. This step-by-step approach helps isolate the contribution of each distortionary component. It asks what would be the likely benefits of optimal wage and tariff policies in the auto and steel industries.Environmental Economics&Policies,Economic Theory&Research,Health Economics&Finance,Access to Markets,Markets and Market Access