The Canada-US Free Trade Agreement (CUSFTA) came into effect on 1 January 1989 and changed the competitive landscape of Canada. A new study of how Canadian workers fared in the years following the bi-lateral agreement shows that, while there were job losses in the short term, workers went on to recover those losses relatively quickly as export opportunities appeared.

Published in The Review of Economic Studies, the study The Long-Run Labour Market Effects of the Canada-U.S. Free Trade Agreement was conducted by Associate Professor Peter Morrow of the Department of Economics at the University of Toronto and his co-author Professor Brian Kovak of Carnegie Mellon University.

Morrow and Kovak used a novel and confidential Statistics Canada dataset that enabled the team to track individual worker’s earnings from each employer between 1984 and 2004.

“We took workers who were employed in 1988, on the eve of CUSFTA, and followed them over time as the tariff cuts went into effect,” Morrow explained. “The prevailing conventional wisdom about tariff reduction and labour market effects comes from studies of the China shock, and that literature persistently finds that import competition from China is bad for workers and things stay bad for a long time. That is not what we find here.” [Read more…]