Good Jobs, Bad Jobs, and Protectionism

There is no single country in the World without tariffs. One main argument supporting such policies is to protect “good jobs.” This paper examines if these policies may be defended based on economic efficiency. This paper presents a small open economy model with two sectors: the “good jobs” and the “bad jobs” sectors. Workers in the good jobs sector have bargaining power and higher wage and marginal productivity than those in the bad jobs sector. This labor market distortion involves a misallocation of resources. Namely, the labor devoted to the good jobs sector is inefficiently small, and GDP does not reach its maximum. A tariff on the good jobs sector distorts consumer choice but improves labor allocation among sectors and raises GDP. As a result, the optimal tariff on the good jobs sector is always positive