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Labor Market Institutions and the Second‐Best Tariff
Author(s) -
Rama Martín
Publication year - 1997
Publication title -
scandinavian journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.725
H-Index - 64
eISSN - 1467-9442
pISSN - 0347-0520
DOI - 10.1111/1467-9442.00064
Subject(s) - economics , monopolistic competition , product market , welfare , perfect competition , latin americans , negotiation , tariff , benchmark (surveying) , wage , competition (biology) , labour economics , monopoly , microeconomics , international economics , market economy , ecology , linguistics , philosophy , geodesy , incentive , political science , law , biology , geography
Labor market distortions provide a second‐best case for protection. However, the implications are less obvious when the product market is imperfectly competitive too, as suggested by several partial equilibrium studies. This paper adopts a general equilibrium approach, combining unionization in labor markets with monopolistic competition in product markets. Two labor market settings are considered: fully centralized wage bargaining (“Scandinavia”, for short) and negotiation at the firm level (“Latin America”). The competitive labor market case is used as a benchmark. It is shown that in Latin America the second‐best tariff is higher, and the welfare level lower, than in the benchmark case. Scandinavia reaches the first best under free trade.