FacebookTwitterGoogle+RedditEmail

NAFTA and Jobs

by DEAN BAKER

Given the trends in U.S. trade with Mexico over the last two decades, it is strange that there is much of a debate over Nafta’s impact on wages. At the time Nafta was passed in 1993 the United States had a modest trade surplus with Mexico. In 2013 we are on a path to have a trade deficit of more than $50 billion. The $50 billion in lost output corresponds to roughly 0.3 percent of gross domestic product, assuming the same impact on employment, this would translate into more than 400,000 jobs. If each lost job would have led to half a job being created as a result of workers spending their wages, this would bring the total impact to 600,000 jobs.

Of course some of the shift from surplus to deficit might have occurred even without Nafta, but it would be difficult to argue that Nafta was not a major contributing factor. After all, one of the main purposes of the agreement was to make U.S. firms feel confident that they could locate operations in Mexico without having to fear that their factories could be nationalized or that Mexico would impose restrictions on repatriating profits. This encouraged firms to take advantage of lower cost labor in Mexico, and many did.

This can produce economic gains; they just don’t go to ordinary workers. The lower cost of labor translates to some extent into lower prices and to some extent into higher corporate profits. The latter might be good news for shareholders and top management, but is not beneficial to most workers.

Lower prices are helpful to workers as consumers, but are not likely to offset the impact on wages. To see this point, imagine that Nafta was about reducing the wages of doctors by eliminating the barriers that made it difficult for Mexican school children to train to U.S. standards and practice medicine in the United States.

If we got an additional 200,000 doctors from Mexico over the last 20 years then it would likely go far toward bringing the pay of doctors in the United States more in line with the pay of doctors in other wealthy countries. This would lead to tens of billions of years in savings in health care costs to patients and the government.

Even doctors would share in these savings, since they too would have to pay less for their health care. However no one would try to tell doctors that they were better off from this trade deal because of their reduced health care costs. The hit to their wages would have swamped the savings on their health care bill. This is the same story with ordinary workers and the impact of Nafta.

Nafta could have been structured to bring the pay of doctors and other highly paid professionals more in line with their pay in other wealthy countries by removing barriers. This would have produced substantial economic gains to the economy as a whole (it’s the exact same model as economists use to show gains from the Nafta we have), except these gains would be associated with a downward rather than an upward redistribution of income.

The doctors and their allies among the elite have been able to prevent such a deal from being considered by the politicians in Washington, American workers don’t have that power.

Dean Baker is the co-director of the Center for Economic and Policy Research (CEPR). He is the author of Plunder and Blunder: The Rise and Fall of the Bubble Economy and False Profits: Recoverying From the Bubble Economy.

This essay originally ran in the New York Times.

Dean Baker is a macroeconomist and co-director of the Center for Economic and Policy Research in Washington, DC. He previously worked as a senior economist at the Economic Policy Institute and an assistant professor at Bucknell University.

More articles by:

CounterPunch Magazine

minimag-edit

bernie-the-sandernistas-cover-344x550

zen economics

February 27, 2017
Anthony DiMaggio
Media Ban! Making Sense of the War Between Trump and the Press
Dave Lindorff
Resume Inflation at the NSC: Lt. General McMaster’s Silver Star Was Essentially Earned for Target Practice
Conn Hallinan
Is Trump Moderating US Foreign Policy? Hardly
Norman Pollack
Political Castration of State: Militarization of Government
Kenneth Surin
Inside Dharavi, a Mumbai Slum
Lawrence Davidson
Truth vs. Trump
Binoy Kampmark
The Extradition Saga of Kim Dotcom
Robert Fisk
Why a Victory Over ISIS in Mosul Might Spell Defeat in Deir Ezzor
David Swanson
Open Guantanamo!
Ted Rall
The Republicans May Impeach Trump
Lawrence Wittner
Why Should Trump―or Anyone―Be Able to Launch a Nuclear War?
Andrew Stewart
Down with Obamacare, Up with Single Payer!
Colin Todhunter
Message to John Beddington and the Oxford Martin Commission
David Macaray
UFOs: The Myth That Won’t Die?
Weekend Edition
February 24, 2017
Friday - Sunday
Jeffrey St. Clair
Roaming Charges: Exxon’s End Game Theory
Pierre M. Sprey - Franklin “Chuck” Spinney
Sleepwalking Into a Nuclear Arms Race with Russia
Paul Street
Liberal Hypocrisy, “Late-Shaming,” and Russia-Blaming in the Age of Trump
Ajamu Baraka
Malcolm X and Human Rights in the Time of Trumpism: Transcending the Master’s Tools
John Laforge
Did Obama Pave the Way for More Torture?
Mike Whitney
McMaster Takes Charge: Trump Relinquishes Control of Foreign Policy 
Patrick Cockburn
The Coming Decline of US and UK Power
Louisa Willcox
The Endangered Species Act: a Critical Safety Net Now Threatened by Congress and Trump
Vijay Prashad
A Foreign Policy of Cruel Populism
John Chuckman
Israel’s Terrible Problem: Two States or One?
Matthew Stevenson
The Parallax View of Donald Trump
Norman Pollack
Drumbeat of Fascism: Find, Arrest, Deport
Stan Cox
Can the Climate Survive Electoral Democracy? Maybe. Can It Survive Capitalism? No.
Ramzy Baroud
The Trump-Netanyahu Circus: Now, No One Can Save Israel from Itself
Edward Hunt
The United States of Permanent War
David Morgan
Trump and the Left: a Case of Mass Hysteria?
Pete Dolack
The Bait and Switch of Public-Private Partnerships
Mike Miller
What Kind of Movement Moment Are We In? 
Elliot Sperber
Why Resistance is Insufficient
Brian Cloughley
What are You Going to Do About Afghanistan, President Trump?
Binoy Kampmark
Warring in the Oncology Ward
Yves Engler
Remembering the Coup in Ghana
Jeremy Brecher
“Climate Kids” v. Trump: Trial of the Century Pits Trump Climate Denialism Against Right to a Climate System Capable of Sustaining Human Life”
Jonathan Taylor
Hate Trump? You Should Have Voted for Ron Paul
Franklin Lamb
Another Small Step for Syrian Refugee Children in Beirut’s “Aleppo Park”
Ron Jacobs
The Realist: Irreverence Was Their Only Sacred Cow
Andre Vltchek
Lock up England in Jail or an Insane Asylum!
Rev. William Alberts
Grandiose Marketing of Spirituality
Paul DeRienzo
Three Years Since the Kitty Litter Disaster at Waste Isolation Pilot Plant
Eric Sommer
Organize Workers Immigrant Defense Committees!
Steve Cooper
A Progressive Agenda
FacebookTwitterGoogle+RedditEmail