Working Paper: CEPR ID: DP1143
Authors: Martin Rama; Guido Tabellini
Abstract: This paper uses the common agency approach to analyse the joint determination of product and labour market distortions in a small (developing) 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 labour 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 labour. It also shows that conditionality by foreign agencies should target product market distortions, not labour market distortions.
Keywords: Minimum Wage; Lobbying; Social Pact
JEL Codes: F10; J00
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| lobbying efforts from organized interest groups such as capital owners and union members (D72) | product and labor market distortions (F16) |
| product and labor market distortions (F16) | move in the same direction in response to changes in economic and political parameters (O24) |
| social pacts between capital and labor (J58) | equilibrium levels of product and labor market distortions (F16) |
| removal of trade distortions (F13) | adjustments in labor market policies (J48) |
| trade policy reforms (F13) | labor market adjustments (J48) |