Assessing employment benefits from trade: US-Mexico trade under NAFTA

Abstract

Recent tendencies in the operation of Global Value Chains (GVC) have indicated an increasingly asymmetric distribution of benefits in terms of the participating countries and different layers of workers. This paper employs the World Input–Output Database to calculate the working hours and wages embodied in manufacturing exports between the US and Mexico, by country of origin and skill level, from 1995 to 2008. In purchasing power, the increase in total wages paid in the US, generated by the bilateral trade, was significantly higher than that of wages paid in Mexico, even though the additional number of hours worked in Mexico was seven times higher. For the US, the results ratify the loss of jobs after 2001, but with an upgrade of the skill structure. We conclude that the trend towards replacement of low-skilled labour by more capital-intensive systems occurs within GVC to the detriment of the incomes of low-skilled workers.

KEYWORDS:

• Input–Output
• Global Value Chains
• NAFTA
• employment
• industry

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 Since the OECD source does not allow to distinguish the destination of final goods exports from the US to Mexico between the domestic sector and the maquiladora sector, the destination of these exports was attributed to the Mexican domestic sector in the exercises.

2 Of the domestic value added embodied in exports of intermediate goods from the US to Mexico, 14.9% was imported back to the US in the form of final goods and 27.8% was incorporated into goods that satisfied the final demand of the US market.

3 Between 2000 and 2007, the average annual growth rate of US nonpetroleum imports from Mexico decreased to 5.6%, whilst the growth rate of US imports from China increased to 20.4% (Blecker, 2014).

4 Cervantes and Fujii (2017) report that in the period of 1995-2011, the United States lost more than 25 percentage points in its share of the total external value added embodied in Mexico’s manufacturing exports, mainly to the Chinese economy, which gained 17 percentage points.

5 Timmer et al. (2014) documented a trend towards an increase in the participation of capital and of high-skilled labour in the income generated by GVCs. Timmer et al. report that, globally, the participation of capital and of high-skilled labour, together, in the total value of the manufacturing industry, increased from 55% in 1995 to 63% in 2008.

Additional information

Funding

This work was supported by DGAPA – UNAM [grant number PAPIIT No. IN300120].