The Canada-U.S. Free Trade Agreement (FTA) was expected to reallocate workers from high-cost firms to low-cost firms, thus promoting specialization and trade creation. Instead, employment contracted across all industries during 1989-93 and real exports and imports contracted over most of the...

We provide a simple model to illustrate that tax and redistributive considerations as well as increasing globalization may lead workers unexposed to the threat of unemployment to prefer government spending on active labour market programmes to passive spending, e.g., on unemployment benefits. In...