The political economy of labor subsidies in France: An application of public choice theory.

Abstract

The political economy of trade literature analyzes the industrial pattern of trade protection. This thesis is in this spirit, but the venue is changed from international trade policy to government intervention in labor markets. In several advanced industrialized countries, there is a network of policy measures, distributed at the administrative discretion of the government, which award selected structurally displaced workers more generous payments than those paid to the unemployed workers covered only by the universal unemployment insurance system. Access to these benefits is restricted to workers who formerly worked in certain industries. This set of policy measures implies that the recipients possess a de facto social property right of permanent employment as they are insulated from the risk of unemployment due to any cause, rather than due solely to changes in international trade patterns. The primary focus of this thesis is endogenizing the sectoral distribution of certain publicly funded labor market subsidy measures of this type in effect in France, with the goals of (a) testing hypotheses regarding government's motive and (b) drawing positive conclusions regarding the factors which influence the pattern of benefits, which is heavily tilted toward workers in 'smokestack industries'. Chapter 2 presents the stylized facts and a description of the policy measures of interest. Chapter 3 considers several Pareto efficient paradigms which might be used to explain this type of income redistribution and concludes that a modified version of the conventional gains from trade model is the most sensible of these paradigms to apply to this policy measure. Chapter 4 contains a discussion of a Pareto inefficient paradigm which is a modified version of a rent seeking model constructed by Becker (1983). I argue that the model which can be best applied to the policy measures of interest is an overreaching one containing nested elements of both types of paradigms. Chapters 5 and 6 contain the empirical work, whose primary conclusion is that there appears to be a role for the variables which capture the organizational capacities of an interest group as well as for indicators reflecting the potential income losses of the members of a worker group. This evidence supports the rent seeking hypothesis and the social insurance hypothesis of government behavior. Chapter 7 contains the conclusion, which relates these findings to the liberalization measures that the European Community has planned for 1992.