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Integration, Regulation, Lobbying by Firms and Workers, and Technological Change

This paper examines an economic union where oligopolistic flrms produce by skilled and unskilled labor and do R&D by skilled labor. The planner of the union accepts new members to the union, deregulates the product market through anti-trust policy and regulates the labor market through a minimum wage for unskilled labor. Firms and workers lobby the planner for prospective policy. It is shown that in the political equilibrium small unions apply product market deregulation, but large unions labor market deregulation. When an economic union grows, it will replace regulation by deregulation in the labor market.