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Structural change and technology

16 December, 2015 - 15:24

In a nutshell the answer is that while consumers in the aggregate gain from the reduction of trade barriers, and there is a net gain to the economy at large, some individual sectors of the economy lose out. Not surprisingly the sectors that will be adversely affected are vociferous in lodging their objections. Sectors of the economy that cannot compete with overseas suppliers generally see a reduction in jobs. This has been the case in the manufacturing sector of the Canadian and US economies in the most recent two decades, as manufacturing and assembly has flown off-shore to Asia and Mexico where labour costs are lower. Domestic job losses are painful, and frequently workers who have spent decades in a particular job find reemployment difficult, and rarely get as high a wage as in their displaced job.

Such job losses are reflected in calls for tariffs on imports from China in order to ‘level the playing field’ – that is, to counter the impact of lower wages in China. Of course it is precisely because of lower labour costs in China that the Canadian consumer benefits.

In Canada we deal with such dislocation first by providing ‘unemployment’ payments to workers and second by furnishing retraining allowances from Canada’s Employment Insurance program. Of course, such support does not guarantee an equally good alternative job. But structural changes in the economy, due to both internal and external developments, must be confronted. For example, the information technology revolution made tens of thousands of ‘data entry’ workers redundant. Should producers have shunned the technological developments which increased their productivity dramatically? If they did, would they be able to compete in world markets?

While job losses feature heavily in protests against technological development and freer trade, most modern economies continue to grow and create more jobs in the service sector than are lost in the manufacturing sector. Developed economies now have many more workers in service than manufacture. Service jobs are not just composed of low-wage jobs in fast food establishments – ‘Mcjobs’, they are high paying jobs in the health, education, legal and communications sectors of the economy.