Import shocks and labour market adjustment: an analysis with longitudinal data

• Main Author: Sargent, Timothy C.
• Language: English
• Published: 2009
• Online Access: http://hdl.handle.net/2429/7551

The objective of this thesis is to examine the labour market effects of increasing international competition. In particular I am interested in whether those who leave employment in import-affected industries find it easy to obtain equally well paid employment elsewhere. The thesis begins with a theoretical overview of the issues involved. After a review of the literature, I argue that a necessary condition for active trade policy to assist workers in an affected industry is that the individuals concerned be earning rents: they must suffer significant losses from displacement. In the next section I construct a theoretical model in which adverse selection in the labour market ensures that some workers earn rents, and that if a firm shuts down because of international competition the social costs from the displacement of its workforce can outweigh the benefits of lower import prices. This model is then adapted into a search framework in order to allow for unemployment. This enables me to derive predictions concerning the observable labour market behaviour of agents in different industries. Next I conduct an empirical analysis of worker displacement in Canada using the Labour Market Activity Survey. After categorising individuals according to the long term health of their industry and the degree of import competition it has faced in recent years, I estimate various duration models using the length of joblessness as the dependent variable, as well as models of the re-employment wage. In both cases it is found that those in import-affected declining industries suffer significant losses, both relatively and absolutely. I also estimate a model for pre-displacement earnings that attempts to compare the wages of those who leave their job with the wages of those who stay. I find that in declining industries the better paid tend to leave, as predicted by the theoretical model. Finally I find that a relatively small proportion of employees remain in the same industry, and that for the import affected declining industry group there is evidence that changing industry is positively correlated with re-employment, whilst the reverse is true for other industries.