Abstract

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

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