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

UC Santa Cruz Economics Working Paper No. 03-19

42 Pages Posted: 9 Mar 2004

See all articles by Xenia Matschke

Xenia Matschke

University of California, Santa Cruz

Shane M. Sherlund

Federal Reserve Board of Governors

Date Written: November 2003

Abstract

Some recent empirical studies, motivated by Grossman and Helpman's (1994) well-known "Protection for Sale" model, suggest that very few factors (none of them laborrelated) 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 Grossman-Helpman model if the trade union of a sector lobbies but capital owners do not, because union workers collect part of the protection rents. On the other hand, 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 do indeed play important roles in the determination of U.S. trade policy.

Keywords: Tariffs, trade protection, protection for sale, labor market

JEL Classification: F13, F16

Suggested Citation

Matschke, Xenia and Sherlund, Shane M., Do Labor Issues Matter in the Determination of U.S. Trade Policy? An Empirical Reevaluation (November 2003). UC Santa Cruz Economics Working Paper No. 03-19. Available at SSRN: https://ssrn.com/abstract=509104 or http://dx.doi.org/10.2139/ssrn.509104

Xenia Matschke (Contact Author)

University of California, Santa Cruz ( email )

1156 High St
Santa Cruz, CA 95064
United States

Shane M. Sherlund

Federal Reserve Board of Governors ( email )

20th and C Streets, NW
Mailstop 93
Washington, DC 20551
United States
202-452-3589 (Phone)
202-728-5887 (Fax)

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