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  • estache_foucart_reforms_01062021

    Rights statement: This is the author’s version of a work that was accepted for publication in European Economic Review. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in European Economic Review, 137, 2021 DOI: 10.1016/j.euroecorev.2021.103789

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    Embargo ends: 16/06/23

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On the political economy of industrial, labor and social reforms as complements

Research output: Contribution to journalJournal articlepeer-review

Published
Article number103789
<mark>Journal publication date</mark>31/08/2021
<mark>Journal</mark>European Economic Review
Volume137
Number of pages22
Publication StatusPublished
Early online date16/06/21
<mark>Original language</mark>English

Abstract

This paper shows that ignoring the political relevance of labor and social policies can lead to the failure of an industrial policy designed to modernize an economy. Our analysis is based on a simple model of a two-sector economy (one old and one new) in which policy decisions are adopted under a majority rule. This model suggests that unless, (i) the labor policy ensures that workers have enough bargaining power to give them an incentive to find a job matching their skills in a restructured economy and (ii) the government adopts a social policy compensating the losers of the industrial policy, the new sector is unlikely to develop. Moreover, we find that the credibility of the commitments made drives the effectiveness of the coordination of the three policy elements.

Bibliographic note

This is the author’s version of a work that was accepted for publication in European Economic Review. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in European Economic Review, 137, 2021 DOI: 10.1016/j.euroecorev.2021.103789