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The labour protection bias of the Canadian tariff structure Tully, Douglas Blair

Abstract

In recent years much criticism has been levelled at the so-called labour bias of protection in the advanced economies. A series of empirical studies have attempted to test the hypothesis that United States tariffs are designed to provide higher rates of protection for labour intensive manufacturing industries. In Canada the assumption of a labour bias has been implicit in much of the literature, but no study had previously been undertaken to collaborate this claim. Theoretical justification of the labour bias argument is found in the Samuelson-Stolper model. From this base certain measures of labour intensity and of protection were developed. Several primary factor inputs were introduced. In addition to the quantity of labour input, an attempt was made to identify qualitative differences in the labour factor. In addition, physical capital and resources were considered as important primary factors. There was some question of the relevance of some of these, particularly the physical capital and resource factors, in comparative advantage arguments concerning Canadian trade in manufactured goods. Certain conceptual problems regarding the use of "direct" versus "direct-plus-indirect" factor inputs were also involved in this part of the analysis. Two measures of protection were identified, nominal tariff rates and effective protection rates. Since the study chose to utilize only "direct" factor inputs the latter measure of protection was considered to be more relevant. Effective rates are a relatively new concept, however, and so the more common measure was also included. The results of the analysis indicated that there was, in fact, a significant labour bias in the structure of the Canadian tariff on manufactured goods. The evidence suggested that when the primary factors were combined the bias was stronger than when any one factor was considered alone relative to labour. The evidence also indicated that two primary factors, human capital (the quality of labour) and resources, relative to labour appeared to account for the bias. Unexplainably, the results pointed to a somewhat stronger relationship when nominal rates rather than effective rates were considered.

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