Non-Tariff Barriers
Quick footwork?

The UK footwear industry has faced severe import pressure since the early 1950s. Two decades of absolute decline in domestic sales and output provoked demands for trade restrictions in the 1970s. This was not possible for imports from EC suppliers, but the government has imposed quantitative restrictions on leather footwear imports from Eastern Europe (since 1976) and on non-leather footwear from Taiwan (1977-85) and Korea (since 1979). A popular justification for import restrictions is that they divert demand to local suppliers and thereby save the costs associated with labour adjustment. In Discussion Paper No. 376, Wendy Takacs and Programme Director L Alan Winters explore the validity of these arguments for the UK footwear industry.
In a labour market with no rigidities, workers no longer employed in one industry would find work immediately in another. If the new jobs have the same marginal product and wage, there will be no adjustment costs. If market imperfections maintain rigid wages or prevent workers from moving between industries, however, then sudden decreases in the demand for labour can be socially costly. As wages in the UK footwear sector are quite inflexible, these costs do arise from unemployment of displaced workers. The lack of data on unemployment duration for displaced footwear workers forces the authors to use the conservative assumption that these workers do not move out of unemployment until jobs come up for them in the footwear sector. They estimate unemployment duration using data on labour turnover in footwear firms accounting for about 10% of total employment in the sector, finding an average annual turnover rate of 16.9%. While this estimate may appear high, it is low relative to corresponding US data.
Takacs and Winters's model assumes that the UK footwear industry is competitive (with over 700 firms), takes account of the different factor inputs of different footwear types and allows for variations in labour/output ratios. The shift of demand towards UK-produced footwear induced by import restrictions has been estimated in CEPR Discussion Papers Nos. 324 and 283. In the present paper the authors translate these demand shocks into changes in the prices and quantities of UK footwear sales and effects on the employment of labour in the sector, focusing on 1979, when the restrictions were most widespread and should thus have had the greatest effects on employment.
They find that, had the restrictions in existence in 1979 been abolished, 1,064 workers would have been displaced. If these workers had had first priority in returning to employment in the footwear sector, before workers displaced for other reasons, it would have taken just 7 weeks to reabsorb them, at a total cost of £0.37 million in lost footwear output. Even if labour turnover were only half the rate found in the data sample, the adjustment period would last only 14 weeks. If trade-displaced workers were given equal priority to other displaced workers in returning to employment, the adjustment period increases to 21 weeks under the slowest turnover assumption, but the adjustment costs are still only £0.84 million because the bulk of displaced workers are re-employed quickly and only a few have to wait longer.
These `benefits' must be compared with the very high costs of footwear protection, Takacs and Winters note, which are estimated in 1979 alone as £78 million in lost consumer welfare offset by a £21 million increase in UK footwear profits

Labour Adjustment Costs and British Footwear Protection
Wendy E Takacs and L Alan Winters

Discussion Paper No. 376, February 1990 (IT)