THE LABOR-MARKET CONSEQUENCES OF THE CANADA-US FREE-TRADE AGREEMENT

The Canada-U.S. Free Trade Agreement (FTA) was expected to reallocate workers from high-cost firms to low-cost firms, thus promoting special ization 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 tha t the massive 1989-93 Canadian job losses were not primarily caused by the FTA. We further show that FTA tariff cuts account for no more tha n 15 per cent of the Canadian job losses. Restated, other factors (inc luding the fight against inflation) explain more than 85 per cent of t he job losses.