Interindustry Labor Mobility and Domestic Politics -A partisan politics link Qiang Zhou Abstract: Much of the existing literature maintains that factor mobility across industries has important political economic implications but it is exogenous to political process;this paper argues that labor's mobility across industries can be endogenous to partisan politics. Based on a general equilibrium model,we predict that,when unions are decentralized, governments led by Leftist parties seek and obtain higher labor mobility than governments led by Rightist parties.However,as unions become more centralized,such distinction becomes less clear-cut.Time series cross-national analyses on OECD countries from 1960 to 1999 support this prediction and the endogenous labor mobility hypothesis. Key Words: interindustry labor mobility;domestic politics;partisanship;union centralization
Interindustry Interindustry Interindustry Interindustry Labor Mobility Mobility Mobility Mobility and Domestic Domestic Domestic Domestic Politics Politics Politics Politics - A partisan partisan partisan partisan politics politics politics politics link Qiang Zhou Abstract: Abstract: Abstract: Abstract: Much of the existing literature maintains that factor mobility across industries has important political economic implications but it is exogenous to political process; this paper argues that labor’s mobility across industries can be endogenous to partisan politics. Based on a general equilibrium model, we predict that, when unions are decentralized, governments led by Leftist parties seek and obtain higher labor mobility than governments led by Rightist parties. However, as unions become more centralized, such distinction becomes less clear-cut. Time series cross-national analyses on OECD countries from 1960 to 1999 support this prediction and the endogenous labor mobility hypothesis. Key Words: interindustry labor mobility; domestic politics; partisanship; union centralization
1.Introduction In a number of studies in the field of political economy,the ability of factor(that is,capital or labor)owners to move their productive assets across sectors features prominently.This ability is known as the cross-sectoral(or interindustry)factor mobility. For example,in the literature on international trade,mobile or specific factors determine whether Heckscher-Ohlin-Stolper-Samuelson framework or the Ricardo-Viner specific factors model,respectively,is more appropriate to explain the political economy in question (Jones 1971;Samuelson 1971;Stolper and Samuelson 1941).Besides trade, cross-sectoral factor mobility and especially cross-sectoral labor mobility plays an important role in the literature on the varieties of capitalism (VoC).For example, according to Hall and Soskice (2001a),one important difference between the coordinated market economies (CMEs)and the liberal market economies (LMEs)is that the institutional complementarities established within CMEs favor the construction of long term relationship and formation of specific skills,and in LMEs the opposite tends to be true.It follows that skills and human capital tend to be more specific in CMEs than in LMEs,so the inference is that cross-sectoral labor mobility tends to be lower in CMEs than in LMEs.Of course the diverging patterns of labor mobility (or conversely,labor specificity)may in turn reinforce the respective institutional complementarities,which are the very foundations of the varieties of capitalism. Furthermore,cross-sectoral factor mobility may also affect the trajectory of economic growth of a country.Barriers to cross-sectoral factor movement may take many forms,such as the coercive attachment to land (slavery,debt bondage,and seasonal compulsory labor,etc),guilds that limit the talents in and out of an industry,aristocracy
1. Introduction In a number of studies in the field of political economy, the ability of factor (that is, capital or labor) owners to move their productive assets across sectors features prominently. This ability is known as the cross-sectoral (or interindustry) factor mobility. For example, in the literature on international trade, mobile or specific factors determine whether Heckscher-Ohlin-Stolper-Samuelson framework or the Ricardo-Viner specific factors model, respectively, is more appropriate to explain the political economy in question (Jones 1971; Samuelson 1971; Stolper and Samuelson 1941). Besides trade, cross-sectoral factor mobility and especially cross-sectoral labor mobility plays an important role in the literature on the varieties of capitalism (VoC). For example, according to Hall and Soskice (2001a), one important difference between the coordinated market economies (CMEs) and the liberal market economies (LMEs) is that the institutional complementarities established within CMEs favor the construction of long term relationship and formation of specific skills, and in LMEs the opposite tends to be true. It follows that skills and human capital tend to be more specific in CMEs than in LMEs, so the inference is that cross-sectoral labor mobility tends to be lower in CMEs than in LMEs. Of course the diverging patterns of labor mobility (or conversely, labor specificity) may in turn reinforce the respective institutional complementarities, which are the very foundations of the varieties of capitalism. Furthermore, cross-sectoral factor mobility may also affect the trajectory of economic growth of a country. Barriers to cross-sectoral factor movement may take many forms, such as the coercive attachment to land (slavery, debt bondage, and seasonal compulsory labor, etc), guilds that limit the talents in and out of an industry, aristocracy
that reserve the access to public service to those of noble birth,and limited access to credit where lending depends on the identity of the lenders and the borrowers,not on the merits of a project(Przeworski 2007).Przeworski argues that such barriers to factor mobility may result in mismatching skills and opportunities and the overall productivity could be lower as a result(Przeworski 2007). From these discussions we can see a common acknowledgement that the degree of factor mobility can fundamentally shape an economy.What is surprising,and given its foundational role,however,is that most political economy studies remove politics from factor mobility,and simply assume that interindustry factor mobility of a country is exogenous to the domestic political economy in question(Frieden 1991;Grossman and Helpman 1994;Hiscox 2002a,2002b;Mukherjee et al.2007;Rickard 2005;Rogowski 1989),with few exceptions.This paper confronts the conventional assumption of exogenous factor mobility head on,and focuses on interindustry labor mobility (ILM)in specific.2 It argues that in the short-term,ILM can be shaped by domestic political processes,due primarily to the logic of partisan politics. The argument is the following.Observing that politics in almost all advanced industrial countries is dominated by partisan politics along a Left-Right dimension,we argue that both Left and Right governments will prefer a cohesive core constituent base in order to implement their preferred partisan policies.A general equilibrium model Alt and Gilligan argued that factor owners can invest more(less)in the industries where assets are highly specific to commit themselves to certain political course of protectionism (liberalization)and sway the government's political decisions(Alt and Gilligan 1994).Mark Brawley suggested that for those governments whose electoral fortunes depend heavily on the dominant trade cleavages,they may engage in interventions aimed at shifting the dominant cleavage, targeting especially the swing groups(Brawley 2006).In so doing,he no longer treated societal cleavages (which can be regarded as the direct consequences of levels of interindustry factor mobility)as exogenously given,but rather argued that they are susceptible to political manipulations.And Michael Hiscox argued that in the long run,domestic factor mobility may be affected by government policy and regulation.Though he maintained the most important source of changes in factor mobility comes from technological changes(Hiscox 2002b). 2ILM is workers'ability to move across industries,which is defined as"the elasticity of substitution along the transformation curve that maps the conversion of a factor located in one industry for use in another industry at increasing opportunity costs"(Hiscox 2002b)
that reserve the access to public service to those of noble birth, and limited access to credit where lending depends on the identity of the lenders and the borrowers, not on the merits of a project (Przeworski 2007). Przeworski argues that such barriers to factor mobility may result in mismatching skills and opportunities and the overall productivity could be lower as a result (Przeworski 2007). From these discussions we can see a common acknowledgement that the degree of factor mobility can fundamentally shape an economy. What is surprising, and given its foundational role, however, is that most political economy studies remove politics from factor mobility, and simply assume that interindustry factor mobility of a country is exogenous to the domestic political economy in question (Frieden 1991; Grossman and Helpman 1994; Hiscox 2002a, 2002b; Mukherjee et al. 2007; Rickard 2005; Rogowski 1989), with few exceptions. 1 This paper confronts the conventional assumption of exogenous factor mobility head on, and focuses on interindustry labor mobility (ILM) in specific. 2 It argues that in the short-term, ILM can be shaped by domestic political processes, due primarily to the logic of partisan politics. The argument is the following. Observing that politics in almost all advanced industrial countries is dominated by partisan politics along a Left-Right dimension, we argue that both Left and Right governments will prefer a cohesive core constituent base in order to implement their preferred partisan policies. A general equilibrium model 1 Alt and Gilligan argued that factor owners can invest more (less) in the industries where assets are highly specific to commit themselves to certain political course of protectionism (liberalization) and sway the government's political decisions (Alt and Gilligan 1994). Mark Brawley suggested that for those governments whose electoral fortunes depend heavily on the dominant trade cleavages, they may engage in interventions aimed at shifting the dominant cleavage, targeting especially the swing groups (Brawley 2006). In so doing, he no longer treated societal cleavages (which can be regarded as the direct consequences of levels of interindustry factor mobility) as exogenously given, but rather argued that they are susceptible to political manipulations. And Michael Hiscox argued that in the long run, domestic factor mobility may be affected by government policy and regulation. Though he maintained the most important source of changes in factor mobility comes from technological changes (Hiscox 2002b). 2 ILM is workers’ ability to move across industries, which is defined as “the elasticity of substitution along the transformation curve that maps the conversion of a factor located in one industry for use in another industry at increasing opportunity costs” (Hiscox 2002b)
shows that interindustry labor mobility (ILM)levels shape the cohesiveness among labor and capital owners.Other things being equal,higher ILM level leads to more cohesive labor and less cohesive capital.Hence Left(Right)governments prefer to have high(low) ILM levels to foster support from a cohesive labor(business)constituency.Furthermore, centralization of domestic union movement moderates the effect of partisan politics. Centralized unions innately prefer high ILM and their presence conditions different partisan governments'strategy toward ILM,so that the clear partisan correspondence with labor mobility levels will be most manifest under decentralized unions. The structure of this paper is as follows.The next section develops the theory and derives a conditional hypothesis.Section three empirically tests the hypothesis.Section four discusses the potential endogeneity and the fifth section concludes. 2.A Theory of Endogenous Interindustry Labor Mobility 2.1.Partisan governments and labor mobility Modern political parties take positions in the overall policy space that reflect their general ideological preferences and the interests of their constituents.Studies on partisan politics and macroeconomic policies have found that there is a prominent Left-Right differentiation among parties,especially in advanced industrial countries.Left parties tend to be labor-oriented,working-class-based,and their main constituency would mostly include lower income individuals.Left parties and their constituents will generally favor the macroeconomic policies aimed to achieve low unemployment,high economic growth, and are more sympathetic to redistributive government policies.On the other hand,right parties tend to be business-oriented,upper-middle-class-based,and their core constituency composes mostly of wealthier individuals who usually hold financial capital
shows that interindustry labor mobility (ILM) levels shape the cohesiveness among labor and capital owners. Other things being equal, higher ILM level leads to more cohesive labor and less cohesive capital. Hence Left (Right) governments prefer to have high (low) ILM levels to foster support from a cohesive labor (business) constituency. Furthermore, centralization of domestic union movement moderates the effect of partisan politics. Centralized unions innately prefer high ILM and their presence conditions different partisan governments’ strategy toward ILM, so that the clear partisan correspondence with labor mobility levels will be most manifest under decentralized unions. The structure of this paper is as follows. The next section develops the theory and derives a conditional hypothesis. Section three empirically tests the hypothesis. Section four discusses the potential endogeneity and the fifth section concludes. 2. A Theory of Endogenous Interindustry Labor Mobility 2.1. Partisan governments and labor mobility Modern political parties take positions in the overall policy space that reflect their general ideological preferences and the interests of their constituents. Studies on partisan politics and macroeconomic policies have found that there is a prominent Left-Right differentiation among parties, especially in advanced industrial countries. Left parties tend to be labor-oriented, working-class-based, and their main constituency would mostly include lower income individuals. Left parties and their constituents will generally favor the macroeconomic policies aimed to achieve low unemployment, high economic growth, and are more sympathetic to redistributive government policies. On the other hand, right parties tend to be business-oriented, upper-middle-class-based, and their core constituency composes mostly of wealthier individuals who usually hold financial capital
The macroeconomic policies favored by right parties and their supporters will likely be characterized by low inflation,moderate growth,and they are much more averse to redistributive policies.There is a large literature on partisan politics and the Left/Right correspondence with the labor/business classes (Alesina and Rosenthal 1995;Alesina et al.1997:Hibbs 1977,1987,1994:Iversen 2006;Przeworski and Sprague 1986).Dutt and Mitra wrote that"it is fairly standard in the political economy literature to use left-wing (right-wing)and pro-labor(pro-capital)interchangeably when describing political parties"(Dutt and Mitra 2005). Once in power,partisan differentiation in macroeconomic performances and in policy preferences tend to manifest itself (Alesina and Rosenthal 1989,1995;Boix 1997; Garrett 1998;Milner and Judkins 2004).Hibbs wrote that"...[T]he interests and preferences of core party constituencies predispose Left governments to pursue relatively expansive policies intended to raise growth and lower unemployment and Right governments to pursue relatively restrictive policies designed to contain inflation"(Hibbs 2006).In this paper,we assume that partisan governments will implement policies that primarily reflect the preferences of the dominant parties within the governments,and the dominant parties are either pro-labor or pro-capital depending on their main constituency bases. It is justifiable to stress parties'policy concern.Muller and Strom argued that political parties and their leaders in particular are most frequently engaged in hard struggles to find the proper balance among three distinct goals:office,policy,or votes (Muller and Strom 1999).Once in government,however,parties will likely be preoccupied with whether they could implement their preferred policies or whether they
The macroeconomic policies favored by right parties and their supporters will likely be characterized by low inflation, moderate growth, and they are much more averse to redistributive policies. There is a large literature on partisan politics and the Left/Right correspondence with the labor/business classes (Alesina and Rosenthal 1995; Alesina et al. 1997; Hibbs 1977, 1987, 1994; Iversen 2006; Przeworski and Sprague 1986). Dutt and Mitra wrote that “it is fairly standard in the political economy literature to use left-wing (right-wing) and pro-labor (pro-capital) interchangeably when describing political parties” (Dutt and Mitra 2005). Once in power, partisan differentiation in macroeconomic performances and in policy preferences tend to manifest itself (Alesina and Rosenthal 1989, 1995; Boix 1997; Garrett 1998; Milner and Judkins 2004). Hibbs wrote that “…[T]he interests and preferences of core party constituencies predispose Left governments to pursue relatively expansive policies intended to raise growth and lower unemployment and Right governments to pursue relatively restrictive policies designed to contain inflation” (Hibbs 2006). In this paper, we assume that partisan governments will implement policies that primarily reflect the preferences of the dominant parties within the governments, and the dominant parties are either pro-labor or pro-capital depending on their main constituency bases. It is justifiable to stress parties’ policy concern. Muller and Strom argued that political parties and their leaders in particular are most frequently engaged in hard struggles to find the proper balance among three distinct goals: office, policy, or votes (Muller and Strom 1999). Once in government, however, parties will likely be preoccupied with whether they could implement their preferred policies or whether they