Showing papers by "Institute for the Study of Labor published in 1996"

Children and Their Parents' Labor Supply: Evidence from Exogenous Variation in Family Size

Abstract: Although theoretical models of labor supply and the family are well developed, there are few credible estimates of key empirical relationships in the work-family nexus. This study uses a new instrumental variable, the sex composition of the first two births in families with at least two children, to estimate the effect of additional children on parents' labor supply. Instrumental variables estimates using the sex mix are substantial but smaller than the corresponding ordinary least squares (OLS) estimates. Moreover, unlike the OLS estimates, the female labor supply effects estimated using sex-mix instruments appear to be absent among more educated women and women with high-wage husbands. We also find that married women who have a third child reduce their labor supply by as much as women in the full sample, while there is no relationship between wives' child-bearing and husbands' labor supply. Finally results to estimates produced using twins to generate instruments. Estimates using twins instruments are very close to the estimates generated by sex-mix instruments, once the estimators are corrected for differences in the ages of children whose birth was caused by the instruments. The estimates imply that the labor supply consequences of child-bearing disappear by the time the child is about 13 years old.

The NBER Manufacturing Productivity Database

Abstract: This paper provides technical documentation to accompany the NBER manufacturing productivity (MP) database. The database contains information on 450 4-digit manufacturing industries for the period 1958 through 1991. The data are compiled from various official sources, most notably the Annual Survey of Manufactures and Census of Manufactures. Also provided are estimates of total factor productivity (TFP) growth for each industry. The paper further discusses alternate methods of deflation and aggregation and their impact on TFP calculations.

Are Recessions Good for Your Health

Abstract: This study examines the relationship between economic conditions and health. Fixed-effect models are estimated using state level data for the 1972-1991 time period. Health is proxied by total and age- specific mortality rates, as well as by 10 particular causes of death. Total mortality and nine of the ten sources of fatalities exhibit a procyclical variation, with suicides representing the important exception. The fluctuations in mortality are larger for 20-44 year olds than for older individuals. The predicted relationship between personal incomes and health is quite weak and is sensitive to the choice of model specifications, time periods and dependent variables. These findings suggest the possible importance of cyclical variations in the time costs of medical care or healthy lifestyles and of negative health effects of job-holding.

Performance Pay and Productivity

Abstract: What happens when a firm switches from paying hourly wages to paying piece rates? The theory developed below predicts that average productivity rises, that the firm will attract a more able work force and that the variance in output across individuals at the firm will rise as well. The theory is tested with data from a large autoglass company that changed compensation structures between 1994 and 1995. All theoretical predictions are borne out. In the firm examined, the productivity effects are extremely large, amounting to anywhere from about 20% to 36% of output, depending on what is held constant. About half of the worker-specific increase in productivity is passed on to workers in the form of higher wages.

Regionalism versus Multilateralism

Abstract: Do the forces that regional integration arrangements set up encourage or discourage a trend toward globally freer trade? We don't know yet. The literature on regionalism versus multilateralism is growing as economists and political scientists grapple with the question of whether regional integration arrangements are good or bad for the multilateral system. Are regional integration arrangements building blocks or stumbling blocks, in Jagdish Bhagwati's phrase, or stepping stones toward multilateralism? As economists worry about the ability of the World Trade Organization to maintain the GATT's unsteady yet distinct momentum toward liberalism, and as they contemplate the emergence of world-scale regional integration arrangements (the EU, NAFTA, FTAA, APEC, and, possibly, TAFTA), the question has never been more pressing. Winters switches the focus from the immediate consequences of regionalism for the economic welfare of the integrating partners to the question of whether it sets up forces that encourage or discourage evolution toward globally freer trade. The answer is, We don't know yet. One can build models that suggest either conclusion, but these models are still so abstract that they should be viewed as parables rather than sources of testable predictions. Winters offers conclusions about research strategy as well as about the world we live in. Among the conclusions he reaches: Since we value multilateralism, we had better work out what it means and, if it means different things to different people, make sure to identify the sense in which we are using the term. Sector-specific lobbies are a danger if regionalism is permitted because they tend to stop blocs from moving all the way to global free trade. In the presence of lobbies, trade diversion is good politics even if it is bad economics. Regionalism's direct effect on multilateralism is important, but possibly more so is the indirect effect it has by changing the ways in which groups of countries interact and respond to shocks in the world economy. Regionalism, by allowing stronger internalization of the gains from trade liberalization, seems likely to facilitate freer trade when it is initially highly restricted. The possibility of regionalism probably increases the risks of catastrophe in the trading system. The insurance incentives for joining regional arrangements and the existence of shiftable externalities both lead to such a conclusion. So too does the view that regionalism is a means to bring trade partners to the multilateral negotiating table because it is essentially coercive. Using regionalism for this purpose may have been an effective strategy, but it is also risky. This paper - a product of the International Trade Division, International Economics Department - was prepared for a conference on regional integration sponsored by the Centre for Economic Policy Research, La Coruna, Spain, April 26-27, 1996.

Schooling and Labor Market Consequences of the 1970 State Abortion Reforms

Abstract: This study uses the 1970 state abortion reforms to estimate the effect of teen and out-of-wedlock childbearing on the schooling and labor market outcomes of mothers observed in 1980 and 1990 Census microdata. Reduced-form estimates suggest that state abortion reforms had a negative impact on teen marriage, teen fertility, and teen out- of-wedlock childbearing. The teen marriage effects are largest and most precisely estimated for white women while the teen fertility and out-of-wedlock childbearing effects are largest and most precisely estimated for black women. The relatively modest fertility and marriage consequences of abortion reform for white women do not appear to have changed schooling or labor market outcomes. In contrast, black women who were exposed to abortion reforms experienced large reductions in teen fertility and teen out-of-wedlock fertility that appear to have led to increased schooling and employment rates. Instrumental variables estimates of the effects of teen and out-of- wedlock childbearing on the schooling and employment status of black women, using measures of exposure to abortion reform as instruments, are marginally significant and larger than the corresponding OLS estimates.

A Statistical Analysis of Crime Against Foreigners in Unified Germany

Abstract: Germany has experienced a high and rising rate of anti-foreigner violence during the early 1990s. To analyze the determinants of crime against foreigners we assembled a new data set on the number and nature of such crimes at the county level based on newspaper reports. We find significant differences in the patterns of violence in the eastern and western parts of the country. The incidence of anti- foreigner crime is higher in the east and rises with distance from the former west German border. Economic variables like unemployment and wages matter little for the level of crime once location in the east is taken into account. The relative number of foreigners in a country has no relationship with the incidence of ethnic crimes in the west, whereas in the east it has a positive association with the number of crimes per resident and a negative association with the number of crimes per foreign resident.

Technology and Jobs: Secular Changes and Cyclical Dynamics

Abstract: In this paper, we exploit plant-level data for US manufacturing for the 1970s and 1980s to explore the connections between changes in technology and the structure of employment and wages We focus on the nonproduction labor share (measured alternatively by employment and wages) as the variable of interest Our main findings are summarized as follows: (i) aggregate changes in the nonproduction of labor share at annual and longer frequencies are dominated by within plant changes; (ii) the distribution of annual within plant changes exhibits a spike at zero, tremendous heterogeneity and fat left and right tails; (iii) within plant secular changes are concentrated in recessions; and (iv) while observable indicators of changes in technology account for a significant fraction of the secular increase in the average nonproduction labor share, unobservable factors account for most of the secular increase, most of the cyclical variation and most of the cross sectional heterogeneity

Does it Pay to Attend an Elite Private College? Cross Cohort Evidence on the Effects of College Quality on Earnings

Abstract: While there is evidence of a substantial and rising labor market premium associated with college attendance, little is known about how this premium varies across institutions of different quality and across time. Previous research which has estimated the return to college quality has not taken into account that individuals likely select the type of college they attend based in part on the expected economic return and net costs. In this paper we explicitly model high school students' choice of college type (characterized by quality and control) based on individual and family characteristics (including ability and parental economic status), and an estimate of the net costs of attendance and expected labor market return. We estimate selectivity corrected outcome equations, using data from both the National Longitudinal Study of the High School Class of 1972 and High School and Beyond, which permit us to determine the effects of college quality on wages and earnings and how this effect varies across time. Even after controlling for selection effects there is strong evidence of significant economic return to attending an elite private institution, and some evidence that this premium has increased over time.

Age Discrimination, Job Separation, and Employment Status of Older Workers: Evidence from Self-Reports

Abstract: This paper explores the prevalence and consequences of age discrimination in the workplace by analyzing self-reports of discrimination by respondents in the National Longitudinal Survey of Older Men. Age discrimination was reported in seven percent of our cases, during the period 1966-1980. Workers with positive reports were much more likely to separate from their employer and less likely to remain employed than workers who report no age discrimination. The estimated effect of reported discrimination remains large and significant even when controlling for the existence of mandatory retirement provisions on the current job. These findings are generally robust to numerous attempts to correct the estimates for the inherent limitations of self-reported data, particularly the potential heterogeneity bias that arises from differences in the propensity to report discrimination, and the possibility that discrimination is reported in response to other negative labor market outcomes.

Observations on International Labor Standards and Trade

Abstract: This paper reviews the theoretical arguments for and against linking international labor standards to trade. Based on theory alone it is difficult to generalize about the effect of labor standards on efficiency and equity. Some economists have argued that international labor standards are merely disguised protectionism. An evaluation of determinants of support for legislation that would ban imports to the United States of goods made with child labor provides little support for the prevailing political economy view. In particular, members of Congress representing districts with relatively many unskilled workers, who are most likely to compete with child labor, are less likely to support a ban on imports made with child labor. Another finding is that the prevalence of child labor declines sharply with national income. Last, an analysis of compulsory schooling laws, which are often suggested as an alternative to prohibiting child labor, finds a tremendous amount of noncompliance in developing nations.

Monetary Union and European Unemployment

Abstract: In this paper we analyse the likely effects of Economic and Monetary Union (EMU) on European unemployment. We start by describing the current unemployment situation in the European Union (EU). In so doing, we try to assess the relative importance of European, national and regional shocks in driving national and regional unemployment rates, and also to estimate the degree of real wage rigidity across EU countries. We then discuss various factors which, in principle, may contribute towards explaining the high and persistent EU unemployment rates, focusing on several labour market institutions like collective bargaining, job security legislation and unemployment benefits. The final part of the paper analyses, in light of the above evidence, the likely impact of EMU on European unemployment in the short and medium term. We conclude that while the presently high European unemployment rates should not preclude EMU from being established, the operation of the monetary union will be smoother and its net economic benefits larger if Member countries succeed in implementing those structural labour market reforms which are needed for unemployment to go to lower, more reasonable rates.

Who Gets Over the Training Hurdle?: A Study of the Training Experiences of Young Men and Women in Britain

Abstract: Using longitudinal data from the British National Child Development Study, this paper examines gender differences in the determinants of work-related training. The analysis covers a crucial decade in the working lives of the 1958 birth cohort of young men and women--the years spanning the ages 23 to 33. Hurdle negative binomial models are used to estimate the number of work-related training events lasting at least three days. This approach takes into account the fact that more than one-half of the men and two-thirds of the women in the sample experienced no work-related training lasting three or more days over the period 1981-91. Our analysis suggests that reliance on work-related training to improve the skills of the work-force will result in an increase in the skills of the already educated but will not improve the skills of individuals entering the labor market with relatively low levels of education.

Work, Welfare, and Family Structure: What Have We Learned?

Abstract: Welfare reform has once again made its way to the top of the domestic policy agenda. While part of the motivation behind recent reform efforts is fiscally driven, there is also an interest in making changes that address two prominent criticisms of the existing system of public assistance in the United States. First, the system has significant, adverse work incentives. Second, the system discourages the formation of two-parent families and is responsible in a major part for the high and rising rates of female headship and out-of-wedlock birth rates. This paper explores the validity of these criticisms using available empirical evidence and in turn evaluates the impact of various reforms to the system. The programs examined include Aid to Families with Dependent Children Food Stamps and Medicaid programs. The paper relies on evidence based on three sources of variation in welfare policy: cross-state variation, over time variation, and demonstration projects at the state level. The paper concludes that current reforms aimed at reducing female headship and nonmarital births such as family caps, eliminating benefits for teens, and equal treatment of two-parent families are unlikely to create large effects. Changes to implicit tax rates and benefit formulas may increase work among current recipients, but overall work effort may not be affected. These predictions should be accompanied by a word of caution. Many of the proposed changes have never been implemented at the state or federal level and require out of sample predictions. Current state experimentation may help fill this gap.

Demand Shifts, Population Adjustments, and Labor Market Outcomes During the 1980s

Abstract: In this paper we explore the effects of labor demand shifts and population adjustments across metropolitan areas on the employment and earnings of various demographic groups during the 1980s. Results show that, although earnings and employment deteriorated for less-education and black males in most areas in the 1980s, there was a good deal of geographic variation in the magnitudes of these changes. Shifts in labor demand across local areas contributed to this variation, and had greater relative impacts on the earnings and employment of these demographic groups. We also find that popu- lation shifts across areas, presumably due to migation, at least partially offset the effects of these demand shifts. But less-education workers showed substantially lower population adjustments in response to these demand shifts. These limited supply responses apparently contributed importantly to relatively greater deterioration of employment and earnings of these groups in declining areas during the 1980s.

Women Helping Women? Role-Model and Mentoring Effects on Female Ph.D. Student in Economics

Abstract: One potential method to increase the success of female graduate students in economics may be to encourage mentoring relationships between these students and female faculty members. Increased hiring of female faculty is viewed as one way to promote such mentoring relationships, perhaps because of role-model effects. A more direct method of promoting such relationships may be for female graduate students to have female faculty serve as dissertation chairs. The evidence in this paper addresses the question of whether either of these strategies results in more successful outcomes for female graduate students. The evidence is based on survey information on female graduate students and faculties of Ph.D.-producing economics departments, covering the mid-1970s to the early 1990s. With respect to characteristics of the institutions at which students are first placed when leaving graduate school, the empirical evidence provides no support for the hypothesis that outcomes for female graduate students are improved by adding female faculty members, or by having a female dissertation chair. However, with respect to time to complete graduate school, and the completion rate, there is some limited evidence of beneficial effects of female faculty members.

Wages, Productivity, and Worker Characteristics: Evidence from Plant-Level Production Functions and Wage Equations

Abstract: We use a unique new data set that combines individual worker data with data on workers' employers to estimate plant-level production functions and wage equations, and thus to compare relative marginal products and relative wages for various groups of workers. The data and empirical framework lead to new evidence on numerous questions regarding the determination of wages, questions that hinge on the relationship between wages and marginal products of workers in different demographic groups. These include race and sex discrimination in wages, the causes of rising wages over the life cycle, and the returns to marriage. First, workers who have ever been married are more productive than never-married workers and are paid accordingly. Second, prime-aged workers (aged 35-54) are equally as productive as younger workers, and in some specifications are estimated to receive higher wages. However, older workers (aged 55+) are less productive than younger workers but are paid more. Third, the data indicate no difference between the relative wage and relative productivity of black workers. Finally, with the exception of managerial and professional occupations, women are paid about 25-35% less than men, but estimated productivity differentials for women are generally no larger than 15%, and significantly smaller than the pay differential.

Is the Time-Series Evidence on Minimum Wage Effects Contaminated by Publication Bias?

Abstract: Publication bias in economics may lead to selective specification searches that result in overreporting in the published literature of results consistent with economists' priors. In reassessing the published time-series studies on the employment effects of minimum wages, some recent research has reported evidence consistent with publication bias, and concluded that the most plausible explanation of this evidence is editors' and authors' tendencies to look for negative and statistically significant estimates of the employment effect of the minimum wage, (Card and Krueger, 1995a, p. 242). We present results indicating that the evidence is more consistent with a change in the estimated minimum wage effect over time than with publication bias. More generally, we demonstrate that existing approaches to testing for publication bias may generate spurious evidence of such bias when there are structural changes in some parameters. We then suggest an alternative strategy for testing for publication bias that is more immune to structural change. Although changing parameters may be uncommon in clinical trials on which most of the existing literature on publication bias is based, they are much more plausible in economics.

The Effect of Teen Childbearing and Single Parenthood on Childhood Disabilities and Progress in School

Abstract: be responsible for poor health and low levels of schooling among the children of young mothers. This paper uses special disability and grade repetition questions from the school enrollment supplement to the 1992 Current Population Survey to estimate the effect of maternal age and single parenthood on children's disability status and school progress. Our results suggest that there is little association between maternal age at birth and children's disabilities. But the children of teen mothers are much more likely to repeat one or more grades than other children, and within-household estimates of this relationship are even larger than OLS estimates. The grade repetition findings from the CPS are replicated using a smaller sample from the National Longitudinal Survey of Youth. Another finding of interest is that having a father in the household is associated with lower disability prevalence and fewer grade repetitions. But many of the effects of single parenthood on disability, as well as the effect on grade repetition, appear to be explained by higher incomes in two-parent families.

Wage Inequality and Family Labor Supply

Abstract: Using data from the March CPS and the 1960 Census, this paper describes earnings and employment changes for married couples in different types of households stratified by the husband's hourly wage. While the declines in male employment and earnings have been greatest for low wage men, employment and earnings gains have been largest for wives of middle and high wage men. These findings cast doubt on the notion that married women have increased their labor supply in the recent decades to compensate for the disappointing earnings growth of their husbands. We conclude that own wage effects dominate cross effects between husband and wife in accounting for changes in male and female employment.

Local Labor Markets and Welfare Spells: Do Demand Conditions Matter?

Abstract: This paper examines the role of local labor markets in determining how long families receive benefits from the Aid to Families with Dependent Children (AFDC) program. Given the current policy emphasis on devolution and reducing the AFDC caseload through employment, understanding the role of local labor demand is important. The study uses a unique data set based on administrative data which has detailed information on welfare spells for over 100,000 AFDC cases. The empirical work is based on estimates of a duration model where the hazard rate is a function of demographic characteristics, local labor market variables, neighborhood characteristics, county fixed effects and time effects Several alternative measures of local labor market conditions are used and the results show that higher unemployment rates, lower employment growth, lower employment to population ratios, and lower wage growth are associated with longer welfare spells. On average, a typical employment fluctuation over the business cycle, if permanent, would lead to an 8-10 percent reduction in AFDC caseload. Typical changes in real quarterly earnings generate somewhat smaller effects. The combined effect of these two changes,if permanent, would lead to sizeable reductions in the caseload, on the order of 15 percent. The estimated labor market effects are robust to including county level fixed effects and time effects. AFDC-UP participants, blacks, and residents of urban areas are more sensitive to changes in economic conditions while teen parents and refugee groups are found to be much less sensitive to changes in local labor market conditions.

The Economic Consequences of Parental Leave Mandates: Lessons from Europe

Abstract: This study investigates the economic consequences of parental leave mandates using data for 16 European countries over the 1969 through 1988 period. Since women use virtually all of the family leave in most nations, men constitute a reasonable comparison group and the natural experiment in most of the analysis involves examining how changes in leave entitlements affect the gap between female and male labor market outcomes. The employment-to-populations ratios of women in their prime childbearing years are also compared to those of older females, as a function of changes in leave regulations. Parental leave mandates are associated with increases in total employment but appear to have a more modest effect on weekly work hours and there is some evidence that women pay for entitlements to extended leave by receiving lower relative wages. The econometric estimates are sensitive to the inclusion of controls for time-varying country effects and sex-specific within-country time-trends.

The legal framework for collective bargaining in developing economies

Abstract: This paper addresses the question, "How should the law treat labor unions and collective bargaining?" Because the answer to this question depends on what labor unions do, the first part of the paper describes the activities of unions and reviews the research designed to measure the consequences of unionism. The context of this review is a developing country which, by its very nature, cannot sustain as high a level of unionism as the more developed economies. This is partly because unions are agents of employees and, in less developed economies, a large fraction of workers are not employees but are self-employed and unpaid family workers. Developing countries have adopted different approaches to the design of the legal framework of collective bargaining. Some foster and nourish unionism while regimes in other countries actively suppress union activity. Few states adopt a neutral posture. Consequently, in most developing countries, unionism is highly politicized with many unions focusing their energies on political activities instead of representing the interests of their members at their place of work. In general, these political activities of unions have resulted in worse rather than better government economic policy. What is needed is a legal framework that encourages unions to concentrate their activities at the source of their members' welfare, namely, at the enterprise where workers are employed. A regulatory framework is sketched that proposes confining the collective bargaining activities of unions to the level of the enterprise. Once this is effected, the state should adopt a neutral and "hands-off" policy with respect to collective bargaining. Objections to this position are considered. In the public sector, final-offer arbitration is advocated to resolve disputes that would otherwise result in strikes.

More Equal But Less Mobile?: Education Financing and Intergenerational Mobility in Italy and in the United States

Abstract: A state school system should be expected to reduce income inequality and to make intergenerational mobility easier. It is therefore somewhat surprising to observe that Italy, in comparison to the United States, displays less inequality between occupational incomes but lower intergenerational upward mobility, not only between occupations but also between education levels. In this paper we provide evidence on this empirical puzzle and offer a theoretical explanation building around the idea that even if in Italy moving up on the social ladder is easier, the incentive to move may be lower, making mobility less likely.

Exports and Success in German Manufacturing

Abstract: While Germany has a very open, export-oriented manufacturing sector, to date there has been little or no research on the role of exporting in German firm performance. This paper documents the significant differences between exporters and non-exporters and attempts to identify the sources of these disparities. Exporters are much larger, more capital-intensive, and more productive than non-exporters. However, the bulk of the evidence suggests that these performance characteristics predate entry into the export market. We find no positive effects on employment, wage or productivity growth after entry. Our results provide confirming evidence that success leads to exporting, rather than the reverse.

Intra-household transfers and the part-time work of children

Abstract: We analyse labour supply of 16 year old British children together with the cash transfers made to them by their parents. We develop a theoretical framework with an altruistic parent and a selfish child, which serves as the basis for the empirical specification in which labour supply and transfers are jointly determined. We estimate various specifications of the econometric model. Our results confirm that parental transfers and the child's labour supply are heavily dependent on each other and also show the influence of several other factors. For example, transfers are not very elastic with respect to parental income.

Ownership Transformation, Economic Behavior, and Political Attitudes in Russia

Abstract: Has the rapid ownership transformation in Russia had an impact on enterprise performance or on worker behavior and attitudes? This paper investigates this issue using data from a nationwide survey of 1,176 Russian workers conducted in April 1995. We focus on the two primary types of ownership change in Russia: the privatization of existing state-owned enterprises, and the creation (de novo) of new, private organizations. Examining such types of firm behavior as restructuring of product lines, investment in new equipment, changes in internal organization, influences on decision-making, and labor market behavior, we find large and significant differences between privatized and state- owned enterprises, and between new private and all old organizations, controlling for other firm characteristics. Differences in the labor market behavior and attitudes of workers are significant when comparing new and old firms, but less so when comparing privatized to state enterprises. Finally, we analyze the relationship between the ownership of the firm in which an individual works and her political attitudes and voting intentions, finding that employees of the privatized companies tend to be the most anti-reform group while those in new private firms are the most pro-reform.

Labor Market Effects of School Quality: Theory and Evidence

Abstract: This paper presents an overview and interpretation of the literature relating school quality to students' subsequent labor market success. We begin with a simple theoretical model that describes the determination of schooling and earnings with varying school quality. A key insight of the model is that changes in school quality may affect the characteristics of individuals who choose each level of schooling, imparting a potential selection bias to comparisons of earnings conditional on education. We then summarize the literature that relates school resources to students' earnings and educational attainment. A variety of evidence suggests that students who were educated in schools with more resources tend to earn more and have higher schooling. We also discuss two important issues in the literature: the tradeoffs involved in using school-level versus more aggregated (district or state-level) quality measures; and the evidence on school quality effects for African Americans educated in the segregated school systems of the South.

The Effect of Immigrant Admission Criteria on Immigrant Labor Market Characteristics

Abstract: The skill levels of immigrants entering the United States has declined in recent decades, but most immigrants to the United States continue to be admitted on the basis of family contacts, without reference to labor market characteristics. This situation has given rise to a debate about the criteria on which immigrants are admitted or excluded. In this paper I examine how the relative skill levels of immigrants admitted under different criteria vary across countries, those criteria being the possession of highly valued skills and family connections. I draw on the model of Borjas (1987) to predict how the relative skill levels of family-based and skill-based immigrant groups will differ across countries. Using data from the Immigration and Naturalization Service, I test the model and show that: 1) the relative skill levels of the two groups do indeed differ across countries; and 2) the pattern across countries is consistent with the Borjas predictions. The policy implication is that the effects of changing admission criteria will differ across countries, but in a predictable way.

Trade Protection in India: Economics vs. Politics?

Abstract: This paper investigates economic and political determinants of protection across the secondary (manufacturing) sector. Economic factors can be summarized by the infant industry argument and we expect industries which are relatively efficient compared to the rest-of-the-world to have low levels of protection. Moreover, the degree of protection should change as the relative efficiency of an industry changes over time. Political factors reflect pressure group politics: relatively inefficient industries may enjoy a great deal of protection because of political lobbying.