LABOR ADJUSTMENT AND TRADE LIBERALIZATION: COSTS AND ADJUSTMENT POLICIES IN THE CANADIAN CONTEXT

This dissertation examines the role and design of trade adjustment assistance programs in the context of trade liberalization in Canada. It presents a framework for government decisions regarding appropriate interventions to assist labor adjustment. Models are developed for the estimation of the private losses in the value of time of displaced workers as well as the potential benefits to the economy from promoting the reemployment of these workers. Measurement of the economic benefits derived in the labor market requires an estimate of the economic opportunity cost of labor. Two dynamic simulation models are developed: one partial and the other general equilbrium in nature. Estimates are made of the parameters of these models. Two primary data sources are used for these estimates: the Labour Force Tracking Survey, which gives the labor market experience over time of workers losing their jobs from the clothing, textiles and electrical products sectors during 1974-76, and nine regional data bases in which the labor market history of workers experiencing unemployment is built up from their Records of Employment, Unemployment Insurance and other administrative data. The adjustment of individual workers to job-loss is studied by estimating the probabilities of finding and losing jobs over time as a function of socio-economic, regional and labor market condition variables using probit models. The wage rates of workers before and after job-loss are also estimated. As only insured earnings data were available on the regional data bases, maximum likelihood models for estimating limited dependent variables were used to estimate the wage rates. Based upon these models and estimations as well as analysis of the experience of various trade adjustment assistance programs in Canada and the United States, the design of appropriate programs is discussed. These include compensation programs for laid-off workers, assistance to specific firms to delay layoffs, a portable wage subsidy program and various training and mobility programs. The results show that considerable economic benefits can flow from well-designed adjustment assistance programs. These results are important not only in the area of labor adjustment to trade liberalization, but also technological innovation and environmental protection.