Tariffs and the Composition of Employment: Evidence from the Canada-U.S. Free Trade Agreement

Abstract

I analyze the effect of the Canada-U.S. Free Trade Agreement (CUSFTA) on the composition of employment at the local labour market level in Canada. I construct local labour market-level changes in tariffs for both exports and imports, exploiting regional differences in pre-CUSFTA industrial composition to obtain variation in the degree to which CUSFTA affected localities across Canada. I find that Census Divisions which experienced larger Canadian tariff cuts against U.S. imports experienced higher rates of self-employment. Census Divisions with larger American tariff cuts against Canadian goods correspondingly experienced lower rates of self-employment. These self-employment effects are dampened in Census Divisions with higher initial shares of educated people, immigrants, and female workers. I do not find any evidence that part-time employment was affected by CUSFTA tariff cuts. The findings in this paper provide evidence that increasing trade openness between two developed countries can affect the prevalence of self-employment.

Keywords: tariffs, local labour markets, free trade agreements

JEL Classification: F14, F61, F66