Lobbying by Capital and Labor Over Trade and Labor Market Policies
IGIER Working Paper 94
Posted: 13 Nov 1996
Date Written: May 1996
This paper uses the common agency approach to analyze the joint determination of product and labor market distortions in a small open economy. Capital owners and union members lobby the government on both tariffs and minimum wages, while other factors of production are not organized. The paper shows that product and labor market distortions move in the same direction in response to changes in economic and political parameters and that their level is not modified by social pacts between capital and labor. It also shows that labor market distortions are second best. Hence, conditionality by foreign organizations should target distortions in product markets but not in labor markets.
JEL Classification: F10, J00
Suggested Citation: Suggested Citation