In a contemporary study amidst ongoing and occasionally contentious discussions on U.S.-Canada trade policies, researchers analysed the enduring impacts of the 1989 Canada-U.S. Free Trade Agreement (FTA) on the Canadian workforce, leveraging data from the mid-1980s to the early 2000s. Their findings indicated that the significant escalation in trade between the two nations did not detrimentally affect Canadian workers.
The research, conducted jointly by experts from Carnegie Mellon University and the University of Toronto, has been published in the Review of Economic Studies. Brian K. Kovak, a professor of economics and public policy at Carnegie Mellon’s Heinz College and one of the study’s coauthors, elucidated that the bilateral framework of the FTA enabled a thorough examination of both the competitive pressures from imports and the opportunities arising from increased exports following the policy shift. He highlighted that the results carry valuable practical implications, notably that Canadian workers face fewer disruptions when engaging in trade with the United States than with China.
The team employed longitudinal administrative records from Statistics Canada, covering the period from 1984 to 2004, to probe the employment impacts spurred by heightened export activities and intensified import competition in Canada. The study meticulously tracked the career paths of individuals initially employed in sectors that later experienced varying Canadian and U.S. tariff adjustments under the FTA.
Although the research identified some negative impacts from Canadian tariff reductions and positive impacts from U.S. tariff reductions on Canadian workers, these effects were minimal and transient. Workers swiftly regained any lost income by moving to different companies, industries, or sectors.
The study revealed that Canadian tariff reductions neither reduced the total years worked nor the cumulative earnings of workers over the 16 years following the implementation of the FTA. Even in cases where Canadian tariff reductions led to decreased employment and wages, the corresponding U.S. tariff reductions generally balanced out these adverse effects. In essence, while the tariff adjustments had the anticipated impacts, workers adapted quickly and effectively to the shifting demands in the labour market. This suggests that the bilateral nature of the FTA played a crucial role in facilitating these transitions.
Moreover, the study found that Canadian tariff reductions predominantly slowed industry employment growth through reduced hiring rather than increased layoffs, thereby protecting existing workers in the impacted sectors. This finding starkly contrasts the effects of the so-called China Shock, which resulted in significant layoffs and reduced incomes for incumbent workers and newcomers.
The study’s authors, including Peter Morrow, an associate professor of economics at the University of Toronto, remarked that their findings were comparatively optimistic and contradicted those of several other studies. They observed that Canadian workers swiftly exited affected industries, finding new opportunities in different manufacturing sectors, construction, and services. The bilateral nature of the FTA provided those competing with imports alternative employment prospects in manufacturing sectors that benefitted from more considerable U.S. tariff reductions. These comprehensive insights challenge prevailing narratives and underscore workers’ adaptive capacity within the context of bilateral trade agreements.
More information: Brian K Kovak et al, The Long-Run Labour Market Effects of the Canada-U.S. Free Trade Agreement, The Review of Economic Studies. DOI: 10.1093/restud/rdae113
Journal information: The Review of Economic Studies Provided by Carnegie Mellon University