Tariffs and the Composition of Employment: Evidence from the Canada–US Free Trade Agreement

Abstract

I analyze the effect of the Canada–US 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 (CDs) that experienced larger Canadian tariff cuts against US imports experienced higher rates of self-employment. CDs with larger American tariff cuts against Canadian goods correspondingly experienced lower rates of self-employment. These self-employment effects are dampened in CDs with higher initial shares of educated people, immigrants, and female workers. I do not find any evidence that part-time employment is affected by CUSFTA tariff cuts. The findings in this article provide evidence that increasing trade openness between two developed countries can affect the prevalence of self-employment.