Inter-occupational and inter-industry empirical analysis of labour market segmentation in Canada

Abstract

The theory of labour market segmentation represents an assault on the conventional tenets held by the neoclassical school of labour economics. Essentially, the segmentation approach views the economic structure of the labour market as consisting of distinct sectors within which workers operate under fundamentally different rules and conditions, affecting both the distribution of employees among jobs, as well as the distribution of wages. These sectors act as barriers which prevent competitive forces from narrowing wage and earnings differentials. As a result, segmentation theory sees the poverty of the working poor as being mostly the fault of the economic system, as opposed to the individual workers themselves. This study empirically examines the importance of non-competing labour markets for males in Canada, as hypothesized by a refined version of labour market segmentation theory. Using survey data from the Canadian National Mobility Study, semi-logarithmic earnings equations for each identified segment are specified and tested. The results produced demonstrate that statistically significant differences in labour force earnings are for the most part, present across both occupational and industrial labour market sectors. Specifically, differences in earnings were found across the primary upper tier and secondary segment within both the core and periphery sectors. In addition, substantial variation was also present across the core and periphery sector's primary upper and lower tiers. Overall, these findings are interpreted as evidence which both support and extend the hypothesis that Canadian labour markets are segmented. In consequence, past public policies which solely emphasized labour supply adjustments through human capital development have failed in improving the earnings and working conditions of disadvantaged workers because in themselves, they have not assisted those in the secondary and periphery segments to enter the primary and core sectors. Hence, a re-direction of policy which addresses the structural aspects of labour demand is required in order to remove the labour market barriers created by segmentation. Ultimately, a combination of both labour supply and demand policies are needed if we are to expect significant improvements in the earnings capacity of disadvantaged workers in Canada.