Distributional Impacts of the Canada-US Free Trade Agreement

Abstract

We examine the effects of the 1988 Canada-US Free Trade Agreement (FTA) on employment and earnings inequality among low-, medium-, and high-income Canadian workers initially employed in manufacturing. Although the FTA tariff cuts drove large changes in trade flows, we find generally small effects on employment and cumulative earnings during 1989-2004. Workers faced negative effects of import competition and positive effects of access to the US export market, but these effects were largely offset by transitions into other industries and sectors. The effect on earnings inequality was small, with point estimates implying a slight reduction in earnings inequality.