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
can garner enough votes in the next election to remain in government.Since votes can only plausibly be instrumental goals,for parties in government,seeking to implement their ideal policies will most likely be the most important concern of the parties.Another support for emphasizing parties'policy concern comes from the literature on partisan models of party competition.According to the partisan models,parties as well as voters care about policy outcomes in addition to winning elections(Calvert 1985;Wittman 1977, 1983),and rather than in a Downsian model where parties choose policies in order to win elections,"parties want to be elected in order to choose policies".3 A unified and cohesive party or governing coalition tend to have an advantage in decision-making over an internally divided or heterogeneous party or coalition;such an advantage is more pronounced when the party is in the government trying to implement its preferred policies.Intuitively,heterogeneity adds a number of veto players to the decision-making process,and as the number of veto players increases,the probability of making policy changes decreases (Axelrod and Keohane 1985;Tsebelis 2002).Higher cohesiveness among the constituency tends to decrease the number of the potential"veto players"as various segments now possess increasingly similar economic interests.To the extent that parties care about policy outcomes,they have an interest to have a cohesive constituency so as to decrease the number of potential veto players.The following model shows how interindustry labor mobility is intrinsically linked with the cohesiveness among the constituencies of different political spectrum. 2.2.A simple general equilibrium model on constituency cohesiveness Ronald Jones proposed a general equilibrium model of production that analyzes an economy consisting of two factors (Labor and Capital),two sectors,and two 3 Alesina and Rosenthal,1995,p17
can garner enough votes in the next election to remain in government. Since votes can only plausibly be instrumental goals, for parties in government, seeking to implement their ideal policies will most likely be the most important concern of the parties. Another support for emphasizing parties’ policy concern comes from the literature on partisan models of party competition. According to the partisan models, parties as well as voters care about policy outcomes in addition to winning elections (Calvert 1985; Wittman 1977, 1983), and rather than in a Downsian model where parties choose policies in order to win elections, “parties want to be elected in order to choose policies”. 3 A unified and cohesive party or governing coalition tend to have an advantage in decision-making over an internally divided or heterogeneous party or coalition; such an advantage is more pronounced when the party is in the government trying to implement its preferred policies. Intuitively, heterogeneity adds a number of veto players to the decision-making process, and as the number of veto players increases, the probability of making policy changes decreases (Axelrod and Keohane 1985; Tsebelis 2002). Higher cohesiveness among the constituency tends to decrease the number of the potential “veto players” as various segments now possess increasingly similar economic interests. To the extent that parties care about policy outcomes, they have an interest to have a cohesive constituency so as to decrease the number of potential veto players. The following model shows how interindustry labor mobility is intrinsically linked with the cohesiveness among the constituencies of different political spectrum. 2.2. A simple general equilibrium model on constituency cohesiveness Ronald Jones proposed a general equilibrium model of production that analyzes an economy consisting of two factors (Labor and Capital), two sectors, and two 3 Alesina and Rosenthal, 1995, p17
commodities;this model has been further developed by others (Jones 1965,1971;Hill and Mendez 1983:Parai and Yu 1989;Hiscox 2002b).The model reveals a clear linkage between levels of interindustry labor mobility (ILM)and the relative income of labor and capital owners.We build upon this model to analyze the relationship between ILM and constituency cohesiveness. Directly related to our purpose here,from this model we can have the following relationships: d-D<0 (1) onL 6-业，0 (2) onL Wheredenotes the absolute difference between relative changes of labor factor returns for the same labor factor in different industries,here a caret""over a variable denotes the percentage change in that variable,e.g.,w=dw,/w.This absolute difference therefore can be taken to indicate "labor class solidarity".4 Similarly denotes the absolute difference between relative changes of rental rates for the same capital asset used in different industries.n denotes the level of interindustry labor mobility within this economy.5 Since the utility to owners of any type of factors would depend on the income derived from their assets,the model can shed important insight on how the fundamental 4Conforming to the literature,"class solidarity"is measured as the absolute differences between relative changes of returns for the same factor used in different industries,with smaller absolute differences denoting tighter class solidarity.Shrinking absolute differences indicate higher solidarity,which means that given any skill level,returns to different owners of the same factor across industries are more likely to be stable and the relative positions of each factor owner within the economic structure tend to be fixed;less solidarity means such structure is less stable and more prone to change.Hence the absolute difference between relative changes of wages indicates labor class solidarity,while the absolute difference between relative changes of capital returns measures capital class solidarity.. 5A complete derivation of the model can be available upon request
commodities; this model has been further developed by others (Jones 1965, 1971; Hill and Mendez 1983; Parai and Yu 1989; Hiscox 2002b). The model reveals a clear linkage between levels of interindustry labor mobility (ILM) and the relative income of labor and capital owners. We build upon this model to analyze the relationship between ILM and constituency cohesiveness. Directly related to our purpose here, from this model we can have the following relationships: 0 ˆ ˆ 1 2 L w w (1) 0 ˆ ˆ 1 2 L r r (2) Where 1 2 wˆ wˆ denotes the absolute difference between relative changes of labor factor returns for the same labor factor in different industries, here a caret “ ” over a variable denotes the percentage change in that variable, e.g., 1 1 1 wˆ dw / w . This absolute difference therefore can be taken to indicate “labor class solidarity”. 4 Similarly 1 2 rˆ rˆ denotes the absolute difference between relative changes of rental rates for the same capital asset used in different industries. L denotes the level of interindustry labor mobility within this economy. 5 Since the utility to owners of any type of factors would depend on the income derived from their assets, the model can shed important insight on how the fundamental 4 Conforming to the literature, “class solidarity” is measured as the absolute differences between relative changes of returns for the same factor used in different industries, with smaller absolute differences denoting tighter class solidarity. Shrinking absolute differences indicate higher solidarity, which means that given any skill level, returns to different owners of the same factor across industries are more likely to be stable and the relative positions of each factor owner within the economic structure tend to be fixed; less solidarity means such structure is less stable and more prone to change. Hence the absolute difference between relative changes of wages indicates labor class solidarity, while the absolute difference between relative changes of capital returns measures capital class solidarity.. 5 A complete derivation of the model can be available upon request
economic interests of labor and business groups are affected by different levels of ILM. Furthermore,the model indicates the implications different levels of labor mobility will have on the cohesiveness among different types of factor owners and their political support for partisan governments. Relationship (1)above informs us that higher labor mobility (n is associated with a convergence of wage income among otherwise similar labor owners across industries,thus a dynamically more equitable labor income distribution (or higher labor solidarity).In other words,with an increase of labor mobility,changes of wage in sector 1 will be more in sync with changes of wage in sector 2,thus workers employed in either sector 1 or sector 2 will be in more stable economic relations relative to one another;no groups of workers can improve their incomes relative to the other groups by simply being employed in some specific industry.The increase of ILM makes workers' income be determined more by the general labor market skills of the workers over anything else.Higher ILM hence correlates with higher labor class solidarity,meaning the dynamic convergence of wages among similarly skilled workers.As a result,labor class cohesiveness will monotonically improve with increases of ILM levels. Relationship(2)tells us that at the same time higher labor mobility correlates with a divergence of capital returns among similar capital assets across industries,thus lower levels of capital class solidarity.To put it in another way,this means that with an increase of labor mobility,changes of returns to capital in sector 1 will be more out of sync with changes of returns to capital in sector 2,thus capital owners in one industry can improve their economic positions relative to capital owners in the other industry by simply using their capital in the specific industry.The dynamically increasing difference of capital
economic interests of labor and business groups are affected by different levels of ILM. Furthermore, the model indicates the implications different levels of labor mobility will have on the cohesiveness among different types of factor owners and their political support for partisan governments. Relationship (1) above informs us that higher labor mobility ( L ) is associated with a convergence of wage income among otherwise similar labor owners across industries, thus a dynamically more equitable labor income distribution (or higher labor solidarity). In other words, with an increase of labor mobility, changes of wage in sector 1 will be more in sync with changes of wage in sector 2, thus workers employed in either sector 1 or sector 2 will be in more stable economic relations relative to one another; no groups of workers can improve their incomes relative to the other groups by simply being employed in some specific industry. The increase of ILM makes workers’ income be determined more by the general labor market skills of the workers over anything else. Higher ILM hence correlates with higher labor class solidarity, meaning the dynamic convergence of wages among similarly skilled workers. As a result, labor class cohesiveness will monotonically improve with increases of ILM levels. Relationship (2) tells us that at the same time higher labor mobility correlates with a divergence of capital returns among similar capital assets across industries, thus lower levels of capital class solidarity. To put it in another way, this means that with an increase of labor mobility, changes of returns to capital in sector 1 will be more out of sync with changes of returns to capital in sector 2, thus capital owners in one industry can improve their economic positions relative to capital owners in the other industry by simply using their capital in the specific industry. The dynamically increasing difference of capital
returns to otherwise similar capital assets will decrease the capital class solidarity.Hence capital class cohesiveness monotonically deteriorates with increases of ILM levels. Symmetrically we can infer that with a unit decrease of ILM level,labor class solidarity will deteriorate and capital class solidarity will improve. How will labor mobility levels be related to politics?High levels of ILM are associated with high levels of labor cohesiveness.Through the mechanism of labor mobility,labor owners acquire a stake in the success of labor-benefiting policies since they can reap gains from such policies by exercising their ability to move to more productive industries.6 Therefore with high labor mobility,support for labor-benefiting policies from labor owners will be high In similar logic,high ILM levels will lead to deteriorating cohesiveness among capital owners,as some capital owners can make economic gains relative to other capital owners by simply investing their assets in certain industries.Hence with high labor mobility,the general level of support among capital owners for the capital-benefiting policies will be low. The model therefore reveals an unambiguous positive(negative)relationship between ILM levels and labor(capital)class solidarity.And it is straightforward to infer that levels of ILM bear directly on the degree of public support for the partisan political agenda.We argue that in order to push forward the partisan political agendas, governments will engage in partisan manipulation of labor mobility levels.In specific, Left-leaning governments will prefer to have relatively high levels of ILM to maintain a 6 When levels of ILM are high,all policies are either labor-benefiting or non-labor-benefiting.Even if some policies are purported to benefit only parts of the labor force,the labor mobility mechanism will however spread the benefit to the whole labor force since,1)high ILM ensures that high productivity workers can move into those policy-favored industries,2)the absolute differences between relative wage changes will be small with high levels of ILM,so that wages of those industries that are not policy-favored will also rise in sync with those that are policy-favored
returns to otherwise similar capital assets will decrease the capital class solidarity. Hence capital class cohesiveness monotonically deteriorates with increases of ILM levels. Symmetrically we can infer that with a unit decrease of ILM level, labor class solidarity will deteriorate and capital class solidarity will improve. How will labor mobility levels be related to politics? High levels of ILM are associated with high levels of labor cohesiveness. Through the mechanism of labor mobility, labor owners acquire a stake in the success of labor-benefiting policies since they can reap gains from such policies by exercising their ability to move to more productive industries. 6 Therefore with high labor mobility, support for labor-benefiting policies from labor owners will be high. In similar logic, high ILM levels will lead to deteriorating cohesiveness among capital owners, as some capital owners can make economic gains relative to other capital owners by simply investing their assets in certain industries. Hence with high labor mobility, the general level of support among capital owners for the capital-benefiting policies will be low. The model therefore reveals an unambiguous positive (negative) relationship between ILM levels and labor (capital) class solidarity. And it is straightforward to infer that levels of ILM bear directly on the degree of public support for the partisan political agenda. We argue that in order to push forward the partisan political agendas, governments will engage in partisan manipulation of labor mobility levels. In specific, Left-leaning governments will prefer to have relatively high levels of ILM to maintain a 6 When levels of ILM are high, all policies are either labor-benefiting or non-labor-benefiting. Even if some policies are purported to benefit only parts of the labor force, the labor mobility mechanism will however spread the benefit to the whole labor force since, 1) high ILM ensures that high productivity workers can move into those policy-favored industries; 2) the absolute differences between relative wage changes will be small with high levels of ILM, so that wages of those industries that are not policy-favored will also rise in sync with those that are policy-favored
solid labor constituent base,while Right-leaning governments will favor relatively low ILM levels to help keep the business constituent base together.7 2.3.Unions and their moderation effects In the process of partisan manipulation of labor mobility,some mediating political economy factors also need to be considered;specifically,labor unions at various levels can play important roles in aggregating and representing the economic demands and political preferences of labor owners as well as having their independent impact on labor markets and government policies,thus they can help shape the labor market equilibria, especially in capitalist democracies. Alvarez,Garrett and Lange argued that when there are left governments coupled with centralized labor movement,or when there are right governments with weak labor movement,the macroeconomic performance of the country will be better than in other combinations(Alvarez et al.1991).Garrett further developed the idea of encompassness of labor movement and argued that macroeconomic performance will be good when the political economies are coherent,that is,either when left-wing governments are allied with encompassing labor market institutions or when right-wing governments are 7 One concern of using the intuition and logic of the Jones model to reveal the relationship between labor mobility and labor cohesiveness is that there are usually different groups of workers in the labor market and their mobility at sector level may be different from the aggregate national labor mobility on which the previous discussions rely.It may be that groups of workers enjoy different cross-sector mobility (often determined by skill levels)so that high national ILM may not equate high mobility for all workers and thus high labor class solidarity.The concern is that sectors that benefit from limited cross-sector mobility may lobby the government not to (continue to)pursue high aggregate labor mobility,so that even if high ILM levels are desirable,governments may not actually pursue them.In addition to a major intervening factor identified in the next section,we offer two possibilities to address this concern.First,this concern hinges on the willingness and capacity of interest groups to pursue their specialized interests,yet it is not clear that all interest groups in all countries can and will seek special treatment or protection as expressed in this concern (Wade 1993).Realization of special interests preferences also depends critically on the configuration of a country's political institutions and its geography (McGillivray 2004),that not all countries can claim to have a favorable environment for the protection for sale model to work.Second,even if we do allow the special interest groups to have direct access to government policy making,it is not clear that they will lobby for a coherent set of policies regarding ILM.It may well be that some groups(sectors)prefer high aggregate ILM,while others prefer low ILM,and on net these diverging influences may cancel each other out so as not to have much impact on government policy making. Hence in this paper we focus on the aggregate cross-sectoral labor mobility levels
solid labor constituent base, while Right-leaning governments will favor relatively low ILM levels to help keep the business constituent base together. 7 2.3. Unions and their moderation effects In the process of partisan manipulation of labor mobility, some mediating political economy factors also need to be considered; specifically, labor unions at various levels can play important roles in aggregating and representing the economic demands and political preferences of labor owners as well as having their independent impact on labor markets and government policies, thus they can help shape the labor market equilibria, especially in capitalist democracies. Alvarez, Garrett and Lange argued that when there are left governments coupled with centralized labor movement, or when there are right governments with weak labor movement, the macroeconomic performance of the country will be better than in other combinations (Alvarez et al. 1991). Garrett further developed the idea of encompassness of labor movement and argued that macroeconomic performance will be good when the political economies are coherent, that is, either when left-wing governments are allied with encompassing labor market institutions or when right-wing governments are 7 One concern of using the intuition and logic of the Jones model to reveal the relationship between labor mobility and labor cohesiveness is that there are usually different groups of workers in the labor market and their mobility at sector level may be different from the aggregate national labor mobility on which the previous discussions rely. It may be that groups of workers enjoy different cross-sector mobility (often determined by skill levels) so that high national ILM may not equate high mobility for all workers and thus high labor class solidarity. The concern is that sectors that benefit from limited cross-sector mobility may lobby the government not to (continue to) pursue high aggregate labor mobility, so that even if high ILM levels are desirable, governments may not actually pursue them. In addition to a major intervening factor identified in the next section, we offer two possibilities to address this concern. First, this concern hinges on the willingness and capacity of interest groups to pursue their specialized interests, yet it is not clear that all interest groups in all countries can and will seek special treatment or protection as expressed in this concern (Wade 1993). Realization of special interests preferences also depends critically on the configuration of a country’s political institutions and its geography (McGillivray 2004), that not all countries can claim to have a favorable environment for the protection for sale model to work. Second, even if we do allow the special interest groups to have direct access to government policy making, it is not clear that they will lobby for a coherent set of policies regarding ILM. It may well be that some groups (sectors) prefer high aggregate ILM, while others prefer low ILM, and on net these diverging influences may cancel each other out so as not to have much impact on government policy making. Hence in this paper we focus on the aggregate cross-sectoral labor mobility levels