Don’t pop the champagne cork just yet for the EU-Canada trade deal. Sure, policymakers are touting the deal as a boon to their national economies. But there are still more hurdles to clear, including approval by EU member governments. That won't be easy. Protesters claim the deal will crimp wages and eliminate jobs.
The deal removes tariffs, expands existing agreements on goods and updates regulations on services. All of this means big changes in each country’s economy. There will be winners and losers, but what policymakers are after is a net benefit. Once the deal is done, citizens overall should be better off with the agreement, the deal's proponents say.
A study by the EU & Canada projected a deal would result in a total household income gain of at least “8.4 billion euros for Canada, and 10.5 billion euros for the EU.” “These figures do not take into account less-readily-quantifiable areas that provide additional potential for gains," the study said. So we should expect even more great things, right?
Not so fast. A recent Tufts University study says Canadian and European workers' income will take a hit as gains from trade are unlikely to make it into their pockets. The authors say the model used by a variety of EU/Canada trade studies assumes full employment and neutral income distribution and therefore does not paint a full picture.
According to the Tufts study, “By 2023...workers will have foregone average annual earnings of 1,776 euros in Canada and between 316 euros and 1,331 euros in the EU, depending on the country. Aggregate demand shortfalls nurtured by heightened unemployment will also hurt productivity and cause cumulative welfare losses amounting to 0.96 percent and 0.49 percent of national income in Canada and the EU, respectively.”
Labor’s share of the economy has declined as globalization and technology has enabled firms to produce more goods in more places, reducing workers’ bargaining power and lowering wages. If the second study is correct, it would be yet another blow to an already frustrated class of citizens.