Exceptional Argentina Di Tella, Glaeser and Llach - Thomas Piketty

technological improvements or increases in all endowments will reduce λ as more workers
become employed in the service sector. Moreover, if the share of total income represented by food
expenditures tends to decrease and food is produced in the primary sector, then the primary sector
will tend to shrink under autarky (i.e., κ increases). More importantly, since the primary good
has less weight in the consumption bundle, the impact of trade liberalization on workers and
industrial capitalists is less harmful.
3.4.2 Trade and Unions
We have discussed how protectionist policies shift labor and capital employment to the secondary
sector, which reinforces the political demand for protectionist policies. So far, we have abstracted
from the institutions and organizations that might emerge to represent these demands. As we will
argue later, labor unions were organized and empowered during the Peronist period and were key
actors during the following forty years. Labor unions' most visible role was not lobbying for
protectionism but intervening in the wage-setting and employment decisions of manufacturing
firms in order to keep real wages high and avoid layoffs. In this section, we will explain why, if the
number of workers in the economy is increasing, unions' zeal to prevent wage declines will lead to
an increase in the share of workers employed in the service sector and to their ultimate loss of
political power.
Labor unions can influence wages in two basic ways. First, by restricting the access of workers to
the manufacturing sector (e.g., enforcing closed-shop agreements), they can prevent wage
equalization between the secondary and tertiary sectors and maintain a positive industrial wage
premium in the medium and long run. Second, through aggressive collective bargaining, they can
obtain a higher share of total remuneration and reduce the return to capital in the sector in the
medium run. In an environment where the relative supply of workers is increasing, unions will
have to rely on some of these interventions if they are to keep real wages from falling.
If labor unions effectively restrict access to the manufacturing sector, the service sector will absorb
a disproportionately high number of new workers in the medium run and long run. This will result
in a growing share of workers employed in the service sector being opposed to the labor unions;
they will be against both restricted access and protectionist policies.
On the other hand, if labor unions can use their market power to set wages above the value of the
marginal product of labor, then the remuneration of capital in unionized activities will decrease. In
the long run, capital will flow to alternative uses, such as agriculture or non-unionized
manufacturing activities. Decapitalized, unionized manufacturing activities will not hire new
employers and, as a result, union membership will decline in relative terms.
In both of the cases reviewed above, unions' objectives of keeping wages high and avoiding layoffs
of union members run counter to their long-run survival in a context where population growth
outpaces capital accumulation.
3.5 Lessons from the Model
The key result of our model is the finding that protectionist policies are path-dependent. A