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Labor Market Institutions and the Second‐Best Tariff

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  • Martín Rama

Abstract

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.

Suggested Citation

  • Martín Rama, 1997. "Labor Market Institutions and the Second‐Best Tariff," Scandinavian Journal of Economics, Wiley Blackwell, vol. 99(2), pages 299-314, June.
    • Handle: RePEc:bla:scandj:v:99:y:1997:i:2:p:299-314
    DOI: 10.1111/1467-9442.00064
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    Cited by:

    1. Ben J Heijdra & Christian Keuschnigg & Wilhelm Kohler, 2014. "Eastern Enlargement of the EU: Jobs, Investment and Welfare in Present Member Countries," World Scientific Book Chapters, in: European Economic Integration, WTO Membership, Immigration and Offshoring, chapter 2, pages 37-83, World Scientific Publishing Co. Pte. Ltd..
    2. Alvaro Forteza & Martín Rama, 2000. "Labor Market "Rigidity" and the Success of Economic Reforms Across more than One Hundred Countries," Documentos de Trabajo (working papers) 0600, Department of Economics - dECON.
    3. Ben J. Heijdra & Christian Keuschnigg, 2000. "Integration and Search Unemployment: An Analysis of Eastern EU Enlargement," CESifo Working Paper Series 341, CESifo.
    4. Alvaro Forteza & Rossana Patrón, 2003. "Trade Liberalisation with Costly Adjustment," Journal of Applied Economics, Universidad del CEMA, vol. 6, pages 95-125, May.
    5. Alvaro Forteza & Martin Rama, 2006. "Labor Market 'Rigidity' and the Success of Economic Reforms Across More Than 100 Countries," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 9(1), pages 75-105.

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