THE LMPACT OF FREE TRADE ON EMPLOYMENT AND WAGES IN THE CANADIAN SERVICE SECTOR, 1987-1998 by Yannine Watts A Thesis Submitted to the Coliege of Graduate Studies and Research througb Political Science in Partial Fulfillment of the Requirements for the Degree of Master of Arts at the University of Windsor Windsor, Ontario, Canada 1999 O 1999 Yazmine Watts National Library Bibliothèque nationale 1+1 of Canada du Canada Acquisitions and Acquisitions et Bibliographie Services services bibliographiques 395 Wellington Street 395, rue WeMiingtm OnawaON K1A ON4 O(tawa0N K1AW canada canada The author has granted a non- L'auteur a accordé une Licence non exclusive Licence allowing the exclusive permettant a la National Library of Canada to Bibliothèque nationale du Canada de reproduce, loan, distribute or seli reproduire, prêter, distribuer ou copies of this thesis in microform, vendre des copies de cette thèse sous paper or electronic formats. la forme de microfiche/film, de reproduction sur papier ou sur format électronique. The author retains ownership of the L'auteur conserve la propriété du copyright in this thesis. Neither the droit d'auteur qui protège cette thèse. thesis nor substantial extracts fiom it Ni la thèse ni des extraits substantiels may be printed or othenvise de celle-ci ne doivent être imprimés reproduced without the author's ou autrement reproduits sans son permission. autorisation. ABSTRACT On January 1, 1989, the Canada4I.S. Free Trade Agreement (FTA) was implemented. In the pre fiee trade era, there were countless debates engaged in by Canadians about the tùture of jobs and wages as a result of the agreement. In 1994, the North Arnencan Free Trade Agreement (NAFTA) went into effect. The defining characteristic of NAFTA was the modikng of the FTA agreement to accommodate Mexico. With the implernentation of this agreement, Canadians continued to hold heated debates about jobs and the issue of wages becarne more prominent. Wages were a pertinent issue in the NAFTA debate because many Canadians feared that they would have to compete with Iowa Mexican worker wage levels. Throughout the fiee trade debate, proponents of fiee trade maintained that there would be significant job and wage increases, while opponents of fke trade feared job and wage demeases. This thesis examines specifically the impacts on Canadian service sector jobs and wages during the implementation of the FTA and NAFTA. Afier examining ernployment and wage level data in the period 1987- 1998, it was concluded that the Canadian senice sector was not negatively affected as a resuIt of fiee trade as many opponents of fkee trade maintained, nor did it benefit as greatly as proponents argued. TABLE OF CONTENTS .. - ABSTRACT 111 LIST OF TABLES v-vi CK4PTER 1. LITERATURE REVIEW ON THE FREE TRADE DEBATE II. A REVIEW OF STUDIES mASCTRING THE IMPACTS OF THE FREE TRADE AGREEMENT ON CANADA III. METHODOLOGY IV. FREE TRADE DATA AND ANALYSES v. DlSCUSSION REFERENCES VITA AUCTORIS LIST OF TABLES Table #la Annual Employment Levels in the Senice Sector, Non-trrrdeable sector Retail Trade and Wholesale Trade: 1987-1998* (in 1000s) 60 Tsrbie #I b Percentage Changes in Annual Employment Levels in the Service Sector, Non-trader ble sector Retail Trade and Wholesale Trade: Pre-1989 to present Table #2a Annual Average Weekly Wage Earnings in the Service Sector, Non-traderble sector Retail Trade and Wholesale Trade: 1987-1997 (Canadirrn doIIam) Table #2 b Percentage Changes in Annual Average Weekl y Wage Earnings in the Service Sector, Non-trrideable sector Retail Trade and Wholesale Trade: Pre-1989 to present Table #3a Annuai Employment Levels in the Service Sector, Import competing sector Transportation and Warehousing and Information and Culture industries: 1987-1998 * fin 1000s) Table #3b Percentage Changes in Annual Empioyment Levels in the Service Sector, Lmport competing sector Transportation and Warehousing and Information and Culture industries: Pre-1989 to present Table #4a Annual Average Weekly Wage Earnïngs in the Service Sector, Import competing sector Transportation and Storage and Computer and Related Services: 1987-1997 (Canadian dollars) Table Mb Percentage Changes in Annual Average Weekly Wage Eamings in the Senice Sector, Irnport competing sector Tmsportation and Storage and Computer and Related Services: Pre- 1989 to present Table #Sa Annual Employment Levels in the Service Sector, Export-oriented sector Professional, Scientific and Technical Services: 1987-1998 * (in 1000s) Table #5b Percentage Changes in Annuai Empioyment Levels in the Service Sector, Export-oriented sector Pro fessional, Scientific and Technical Senices: Pre-1989 to present LIST OF TABLES Table #6a Annuai Average Weekly Wage Earnings in the Service Sector, Ex port-oriented sector Architecture, Engineering and 0th- Scientific and Technical Services: 1987-1997 (Canadian dollars) Table #6b Percentage Changes in Annual Average Weekly Wage Eamings in the Service Sector, Export-orieated sector Architecture, Engineering and 0thScientific and Technical Services: Pre-1989 to present Chapter 1 Literature Review on the Free Trade Debate Introduction When Canadian Prime Minister Bnan Mulroney and U.S. President Ronald Reagan signed the Canada4.S. Free Trade Agreement (FTA) in January 1988, they put their seal of approval on over two years of trade negotiations. They dso kicked off an enormous poIitica1 debate that pitted fiee trade proponents against opponents who called the FTA the end of Canada's economic sovereignty. Regardless of this debate, however, on January 1, 1989 the Cmada-U.S. Free Trade Agreement was implemented. The Canada-US Free Trade Agreement eliminated tariffs and sought to reduce the impact of non-tari ff barriers (Barker & Charlton 1994, 5 14). In the ten years over which the FTA was to be phased in, Canada was expected to adjust to a new business and economic environrnent (Gandhi 1990,435). During the pre and post fiee trade eras there have been countless arguments made by both proponents and opponents of fiee trade regarding the costs and benefits of this deal. After the U.S. and Canadian governrnents announced in October 1987 that they had successfûlly negotiated a comprehensive bilateral free trade agreement, the full details of the agreement were made public in Decernber. Throughout 1987 and 1988, several labor unions, political parries and interest groups did their own analyses of the benefits and costs of the FTA. Proponents and opponents held heated debates around such matters as the future of Canadian jobs, incornes and wages. Throughout the free trade era, 1 proponents and opponents of the FTA made several contradictory predictions, which only showed that there was a definite lack of consensus about the implications of the agreement. In the period immediately following the signing of the agreement, hopes and fears about the significance of the agreement aroused intense emotions as Canadians struggled to corne to grips with wildly conflicting interpretations of the possible impacts of the FTA. After two years of intense debate on the FTA, Canadians continued to voice their opinions when the North Amencan Free Trade Agreement (NAFTA) was proposed and implemented. The defining characteristic of NAFTA was that it extended and clarified provisions within the FTA, modiwng the existing agreement to accommodate Mexico (Merrett 1996, 278). NAFTA was signed on August 12, 1992 and was implernented in January 1994. In the debate over NAFTA, many opponents relied upon the sarne arguments that were used in the FTA debate. Above dl, many feared Canadian jobs would be lost and Canadian wages would decline. Both agreements, then, generated a great deal of controversy before they were signed and they continue to generate controversy to this day. It is important to note that throughout both the FTA and NAFTA debates, opponents and proponents continued to make widely conflicting predictions about the overall impacts that would be generated by the agreements. There was a definite lack of agreement among the various political parties, interest groups, lobbyists, labor unions and think-tanks. Every group did its own andysis of the benefits -- or costs -- of fiee trade. Throughout the political debate, issues such as the future of Canadian jobs and wages continued to be unresolved. Everyone said something different; some predictions were positive, while others were negative. In light of this continued political debate and lack of consensus on the impacts of fiee trade, the actual effects of fiee trade need to be examined more thoroughiy. This thesis focuses on the possible effects on jobs and wages during the fiee trade era. Over the past ten years, there have been a number of conflicting arguments about the effects on jobs and wages generaily and more specifically in the service sector during the implernentation of the FTA and NAFTA. Specific data on jobs and wages during the FTA and NAFTA periods will be used to deterrnine whether proponents and opponents of free trade were accurate in their predictions and studies. 1. The Free Trade Debate in Canada "For Canada, the subject of fkee trade with the United States is," as one historian says. "the issue that will not go away" (Barker & Charlton 1994, 514). The FTA has caused much political debate. in general, Conservatives, business, executives and economists have been proponents of free trade, while Liberals, New Dernocrats and labor leaders have been opponents. Overall, the main argument of proponents of the FTA was that free trade was vital for Canada's future economic prosperity. In contrast, opponents believed that Canadians would gain little in the way of increased economic opportunities (Brooks 1998, 1 15-1 16). According to several sources, the service sector was predicted to be one of the major sectors affectai as a result of the FTA. FTA proponents and opponents held heated debates about free trade's effects on the services industry. Why was the senrice sector so 3 important? Since 198 1, over 70% of al1 Canadian jobs have been in the service industry.