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Do tariff reductions affect the wages of workers in protected industries? Evidence from the Canada‐U.S. Free Trade Agreement

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  • James Townsend

Abstract

. In this paper, I use Canadian micro‐data on individual workers to investigate the effect on wages of the tariff reductions mandated by the Canada‐U.S. Free Trade Agreement (CUSFTA). The literature on industry wage premia has revealed that the industry of employment is an important determinant of a worker's wage. My findings indicate that relative wages fell in those industries that faced the deepest tariff cuts. This effect was experienced regardless of whether or not workers belonged to a union, suggesting that CUSFTA reduced the returns to industry‐specific human capital for those workers in the mostly heavily affected industries. Dans ce texte, l'auteur utilise des micro données canadiennes pour étudier le rapport entre les niveaux de salaires et les réductions de tarifs douaniers engendrées par l'accord de libre échange Canada US. La littérature sur les primes salariales suggère que la structure industrielle de l'emploi est un facteur déterminant dans la détermination des salaires des employés. Les résultats montrent que les salaires relatifs tombent dans les secteurs industriels où les réductions de tarifs sont les plus importantes. Cet impact est enregistré que les employés soient syndiqués ou non. Voilà qui suggère que l'Accord de libre‐échange réduit les rendements sur le capital humain qui est spécifique à une industrie pour les travailleurs des industries les plus fortement affectées.

Suggested Citation

  • James Townsend, 2007. "Do tariff reductions affect the wages of workers in protected industries? Evidence from the Canada‐U.S. Free Trade Agreement," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 40(1), pages 69-92, February.
    • Handle: RePEc:wly:canjec:v:40:y:2007:i:1:p:69-92
    DOI: 10.1111/j.1365-2966.2007.00400.x
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    References listed on IDEAS

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    1. Noel Gaston & Daniel Trefler, 1997. "The Labour Market Consequences of the Canada-U.S. Free Trade Agreement," Canadian Journal of Economics, Canadian Economics Association, vol. 30(1), pages 18-41, February.
    2. Daniel Trefler, 2004. "The Long and Short of the Canada-U. S. Free Trade Agreement," American Economic Review, American Economic Association, vol. 94(4), pages 870-895, September.
    3. Colin Lawrence & Robert Z. Lawrence, 1985. "Manufacturing Wage Dispersion: An End Game Interpretation," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 16(1), pages 47-116.
    4. Eugene Beaulieu, 2000. "The Canada-U.S. Free Trade Agreement and labour market adjustment in Canada," Canadian Journal of Economics, Canadian Economics Association, vol. 33(2), pages 540-563, May.
    5. Goldberg, Pinelopi Koujianou & Pavcnik, Nina, 2005. "Trade, wages, and the political economy of trade protection: evidence from the Colombian trade reforms," Journal of International Economics, Elsevier, vol. 66(1), pages 75-105, May.
    6. Surendra Gera & Gilles Grenier, 1994. "Interindustry Wage Differentials and Efficiency Wages: Some Canadian Evidence," Canadian Journal of Economics, Canadian Economics Association, vol. 27(1), pages 81-100, February.
    7. Peter Kuhn, 1998. "Innis Lecture: Unions and the Economy: What We Know; What We Should Know," Canadian Journal of Economics, Canadian Economics Association, vol. 31(5), pages 1033-1056, November.
    8. Lawrence F. Katz & Lawrence H. Summers, 1989. "Industry Rents: Evidence and Implications," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 20(1989 Micr), pages 209-290.
    9. Gaston, Noel & Trefler, Daniel, 1995. "Union wage sensitivity to trade and protection: Theory and evidence," Journal of International Economics, Elsevier, vol. 39(1-2), pages 1-25, August.
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    Cited by:

    1. Sébastien Breau & David L. Rigby, 2010. "International trade and wage inequality in Canada," Journal of Economic Geography, Oxford University Press, vol. 10(1), pages 55-86, January.
    2. Moritz Ritter, 2015. "Trade and inequality in a directed search model with firm and worker heterogeneity," Canadian Journal of Economics, Canadian Economics Association, vol. 48(5), pages 1902-1916, December.
    3. Alexander Murray, 2017. "The Effect of Import Competition on Employment in Canada: Evidence from the 'China Shock'," CSLS Research Reports 2017-03, Centre for the Study of Living Standards.
    4. Zhou, Yonghong & Zheng, Xian & Yuan, Ziqing, 2022. "Trade liberalization and wages: Evidence from the closer economic partnership arrangement between mainland China and Hong Kong," Research in International Business and Finance, Elsevier, vol. 61(C).
    5. Sébastien Breau, 2010. "Low-Income-Country Import Competition and the Structure of Earnings Inequality in Canada, 1996–2001," Environment and Planning A, , vol. 42(8), pages 1964-1986, August.

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    More about this item

    JEL classification:

    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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