The Labour Market Consequences of the Canada-U.S. Free Trade Agreement

Abstract

The Canada-U.S. Free Trade Agreement (FTA) was expected to reallocate workers from high-cost firms to low-cost firms, thus promoting specialization and trade creation. Instead, employment contracted across all industries during 1989-93 and real exports and imports contracted over most of the period. This trade destruction provides some evidence that the massive 1989-93 Canadian job losses were not primarily caused by the FTA. Th authors further show that FTA tariff cuts account for no more than 15 percent of the Canadian job losses. Restated, other factors (including the fight against inflation) explain more than 85 percent of the job losses.