Continental Economic Integration: Modeling the Impact on Labor

Many labor representatives in the United States and Canada fear that a North American Free Trade Agreement (NAFTA) will lead to a redirection of investment toward low-wage regions of the continent, consequently reducing wages and employment opportunities in higher-wage areas. These concerns seem to contradict several traditional conclusions of economic theory, and the results of quantitative economic models have suggested that a NAFTA could be beneficial for workers in all three countries. These modeling efforts, however, have been based on highly restrictive assumptions regarding international investment flows, the functioning of labor markets, and other features of the economy. More realistic trade and investment models are needed in order to fairly judge the risks and opportunities posed to labor by continental integration. Some suggestions for future research are provided.