Mexico after NAFTA

Louis Proyect lnp3 at
Sun May 6 09:31:22 MDT 2001

The impact of NAFTA on wages and incomes in Mexico

by Carlos Salas, La Red de Investigadores y Sindicalistas Para Estudios
Laborales (RISEL)

Mexico is much changed in the seven years since NAFTA was implemented in
1994. Although Mexico now has a large trade surplus with the U.S., Mexico
has also developed a large and growing overall trade deficit with the rest
of the world. In fact, Mexico’s net imports from the rest of the world now
substantially exceed its net exports to the United States. Official
unemployment levels in Mexico are lower now than before NAFTA, but this
decline in the official rate simply reflects the absence of unemployment
insurance in Mexico. In fact, underemployment and work in low-pay,
low-productivity jobs (e.g., unpaid work in family enterprises) actually
has grown rapidly since the early 1990s. Furthermore, the normal process of
rural-to-urban migration that is typical of developing economies has
reversed since the adoption of NAFTA. The rural share of the population
increased slightly between 1991 and 1997, as living and WORKING CONDITIONS

Between 1991 and 1998, the share of workers in salaried jobs with benefits
FELL SHARPLY in Mexico. The compensation of the remaining self-employed
workers, who include unpaid family workers as well as small business
owners, was well above those of the salaried sector in 1991. By 1998, the
incomes of salaried workers had fallen 25%, while those of the
self-employed had declined 40%. At that point, the average income of the
self-employed was substantially lower than that of the salaried labor
force. This reflects the growth of low-income employment such as street
vending and unpaid family work (for example, in shops and restaurants).
After seven years, NAFTA has not delivered the promised benefits to workers
in Mexico, and few if any of the agreement’s stated goals has been attained.

Manufacturing exports, as officially reported, have improved rapidly since
NAFTA took effect. From 1995 to 1999, these exports grew at an annual rate
of 16%, due almost exclusively to "value added" exports in Maquiladora
production. The total value of these exports increased 19.7% annually, as
the average value added of products exported from Mexico decreased
(relative to their overall value). However, maquiladora exports contain a
substantial share of imported components from the U.S. and other countries,
reducing the net benefits of these exports to the Mexican economy and its
development. Thus, the export growth and the foreign trade performance of
the Mexican economy LOOK BETTER ON PAPER than in reality. But even these
benefits disappear when total imports are considered. Total manufacturing
imports from the U.S. and the rest of the world grew 18.5% per year between
1995 and 1999, a fact that explains Mexico’s rapidly growing overall
foreign trade deficit in this period. In the long run, this process of
economic growth with expanding foreign trade deficits could lead to another
major currency crisis similar to the one that occurred in 1994.

Traditional manufacturing activities show the SHARPEST RELATIVE REDUCTIONS
in the shares of salaried workers, with the modern manufacturing,
construction, trade, and communications industries being the next largest
losers of salaried jobs. These changes are partially explained by the
effects of the 1995 crisis upon traditional types of production in
manufacturing and other industries, but they also reflect long-term
segmentation trends in labor markets.

The growing share of self-employed workers means that people moved to
DETERIORATING LABOR OCCUPATIONS. Wages decreased by 27% between 1991 and
1998, while overall hourly income from labor decreased 40%. Thus, labor
income for the self-employed was cut in half in this period.

Average SELF-EMPLOYMENT INCOMES FELL from 17% above salaried worker incomes
in 1991 to 19% below in 1998. In real terms, the relative well-being of the
self-employed did not decrease as much as suggested by income comparisons,
but this is far from reassuring. Reductions in real wages do not entirely
explain the deterioration of labor conditions. During the same period, the
share of salaried workers receiving fringe benefits also fell
systematically. . .

Most directly employed workers have seen a STEADY EROSION of their wages in
the 1990s. In the last decade, the minimum wage in Mexico lost almost 50%
of its purchasing power. The minimum wage is set each year through a
process that includes consultations between official unions, employers, and
the federal government. Currently the minimum wage is just a reference
point for the wage bargaining process of wage and salary workers, and wages
are usually set above this level in negotiated contracts.

Labor income in industries whose wage bargaining processes are under
federal supervision (the so-called salarios contractuales or contractual
wages) LOST ALMOST MORE THAN 21% of their purchasing power between 1993
(the year before NAFTA took effect) and 1999. Manufacturing wages also
declined by almost 21% in this period, and the purchasing power of the
minimum wage fell 17.9% through 1999. The decline in real wages since NAFTA
took effect helps explain the decline in labor incomes.

Full report at:

Louis Proyect
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