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NAFTA'S PAIN DEEPENS
Job destruction accelerates in 1999 with losses in every state by by Robert E. Scott, Economic Policy Institute
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From the time the North American Free Trade Agreement (NAFTA) took
effect in 1994 through 1998, growth in the net export deficit with
Mexico and Canada has destroyed 440,172 American jobs (see Table 1).
Moreover, through the first half of 1999 the portion of the U.S. trade
deficit attributable to NAFTA has nearly doubled in comparison to the
same period last year, leading to even more job losses.
Many
previous evaluations of NAFTA's impact on the domestic economy have
failed to consider imports as well as exports. Ignoring the impact of
imports is like trying to keep score in a baseball game by counting only
the runs scored by the home team. When the United States exports 1,000
cars to Mexico, many American workers are employed in their production.
If, however, the U.S. imports 1,000 or more cars from Mexico rather than
build them domestically, then a similar number of Americans who would
have been employed in the auto industry will have to find other work.
Although
gross U.S. exports have increased dramatically - with real growth of
92.1% to Mexico and 56.9% to Canada - these increases have been
overshadowed by the growth in imports, which have gone up by 139.3% from
Mexico and 58.8% from Canada. In 1993, the United States had a net
export deficit with its NAFTA partners of $18.2 billion (all figures in
inflation-adjusted 1987 dollars). From 1993 to 1998, this deficit
increased by 160% to $47.3 billion, resulting in job losses in all 50
states and the District of Columbia (see Figure A).
The growing
U.S. trade deficit has been facilitated by substantial currency
devaluations in Mexico and Canada, which have made both countries'
exports to the United States cheaper while making imports from the
United States more expensive. These devalued currencies have also
encouraged investors in Canada and Mexico to build new and expanded
production capacity to export even more goods to the U.S. market.
The surging NAFTA deficit in 1999 The
total U.S. trade deficit with the rest of the world, through June 1999,
increased by 38.6% relative to the same period in 1998 (see Table 2).
The U.S. deficit with Mexico increased by 71.8%, and the deficit with
Canada more than doubled (increasing by 121.3%) in this period. If
current trends continue, the U.S. trade deficit attributable to NAFTA is
likely to double in 1999, leading to a rapid increase in the number of
jobs lost. Over three-quarters of the jobs lost due to NAFTA through
1998 were in the manufacturing sector, and further growth of the NAFTA
deficit will continue to reduce the number of such high-wage, high-skill
manufacturing jobs available to non-college-educated workers.
As
mentioned above, the recent depreciations of the Mexican peso and
Canadian dollar have helped drive the growth in the United States' trade
deficit with its NAFTA partners. The Mexican peso has lost more than
40% of its value since the 1995 peso crisis, and the Canadian dollar has
declined about 7% against U.S. currency in the past year alone (Federal
Reserve Board of Governors 1999).
This devaluation of currency
in Mexico and Canada, combined with the opportunities afforded by NAFTA,
has led to a surge in foreign direct investment (FDI) in these
countries (see Figure B). In 1994 - the first year NAFTA took effect -
FDI in Mexico increased by 150%. It has remained strong since, despite
the economic problems caused by the peso crisis. FDI in Canada has more
than doubled since 1993, increasing 44% in 1998 alone. Combined FDI
inflows of $116 billion since 1993, along with bank loans and other
types of foreign financing, have funded the construction of thousands of
Mexican and Canadian factories that produce goods for export to the
United States. These factories (and their increased export capacity)
have contributed substantially to the growing U.S. trade deficit and the
related job losses.
Job losses in all 50 States All 50
states and the District of Columbia have experienced a net loss of jobs
under NAFTA (see Table 3). Exports from every state have been offset by
faster rising imports. Net job loss figures range from a low of 395 in
Alaska to a high of 44,132 in California. Other hard-hit states include
Michigan, New York, North Carolina, Indiana, Pennsylvania, Ohio, Texas,
Tennessee, Illinois, Georgia, Florida, Alabama, New Jersey, and
Missouri, each with more than 10,000 jobs lost.
Several states,
notably Arkansas, Indiana, Kentucky, Michigan, North Carolina, Rhode
Island, and Tennessee, experienced job losses disproportionate to their
share of the overall U.S. workforce. These states all have high
concentrations of industries (such as motor vehicles, textiles and
apparel, computers and electricalappliances) where a large number of
plants have moved to Mexico.
While job losses in most states are
modest relative to the size of the economy, it is important to remember
that the promise of new jobs was the principal justification for NAFTA.
According to its promoters, the new jobs would compensate for the
increased environmental degradation, economic instability, and public
health dangers that NAFTA brings (Lee 1995, 10-11). If NAFTA is not
delivering net new jobs, it is not providing enough benefits to offset
the costs it imposes on the American public.
Even when displaced
workers are able to find new jobs in the growing U.S. economy, they face
a reduction in wages, with earnings declining by an average of over 16%
(Farber 1996). These displaced workers' new jobs are likely to be in
the service industry, the source of 104% of net new jobs created in the
United States since 1989 and a sector in which average compensation is
only 77% of that of the manufacturing sector (Mishel, Bernstein, and
Schmitt 1999, 173).
A study commissioned by NAFTA's own labor
secretariat further demonstrated that NAFTA's wage effects extend beyond
the workers who are actually displaced. The study found that many U.S.
employers have been winning wage and benefit concessions from their
workers simply by threatening to shut down and move production to
Mexico. The percentage of firms that move rather than continue to
bargain with workers has tripled since NAFTA's inception (Bronfenbrenner
1997).
The authors thank Stephanie Scott-Steptoe for
administrative assistance and Eileen Appelbaum and Jeff Faux for
comments on earlier drafts.
November 1999
Methodology This
study uses the model developed in Rothstein and Scott (1997a and 1997b;
see the former for a more detailed treatment of the methodology used).
This approach solves four problems that are prevalent in previous
research on the employment impacts of trade:
* Some studies look only at the effects of exports and ignore imports; *
Some studies include foreign exports (transshipments) - goods produced
outside North America and shipped through the United States to Mexico or
Canada - as U.S. exports; * Trade data are usually not adjusted for inflation; * A single employment multiplier is applied to all industries, despite differences in labor productivity and utilization.
The
model used here is based on the Bureau of Labor Statistics' 183 sector
employment requirement table, which was derived from the 1987 U.S.
input-output table and adjusted to 1993 price and productivity levels
(BLS 1996). We use three-digit, SIC-based industry trade data (Bureau of
the Census 1999), deflated with industry-specific, chain-weighted price
indices (BLS 1999). State-level employment effects are calculated by
allocating imports and exports to the states on the basis of their share
of three-digit, industry-level employment2 (BLS 1997). Note that other
studies - see California State World Trade Commission (1997), which
finds 47,600 jobs created in California from increased trade with Canada
alone - have allocated all employment effects to the state of the
exporting company. This is problematic because the production-along with
any attendant job effects-need not have taken place in the exporter's
state. If a California dealer buys cars from Chrysler and sells them to
Mexico, these studies will find job creation in California. However, the
cars are not made in California; the employment effects should instead
be attributed to Michigan and other states with high levels of auto
industry production. Likewise, if the same firm buys auto parts from
Mexico, the loss of employment will occur in auto industry states, not
in California.
References Bronfenbrenner, Kate. 1997. "We'll
close! Plant closings, plant-closing threats, union organizing and
NAFTA." Multinational Monitor. March, pp. 8-13.
Bureau of the
Census. 1999. Unpublished data from Special Compilaton of U.S. Trade
Statistics. Available in machine readable form. Washington, D.C.: U.S.
Department of Commerce.
Bureau of Labor Statistics. 1997. ES202 Establishment Census. Washington, D.C.: U.S. Department of Labor.
Bureau
of Labor Statistics, Office of Employment Projections. 1996. Employment
Outlook: 1994-2005 Macroeconomic Data, Demand Time Series and Input
Output Tables. Washington, D.C.: U.S. Department of Labor.
Bureau
of Labor Statistics, Office of Employment Projections. 1999.
Unpublished data from upcoming Employment Projections. Washington, D.C.:
U.S. Department of Labor.
Farber, Henry S. 1996. "The changing
face of job loss in the United States, 1981-1993." Working Paper No.
360. Princeton, N.J.: Princeton University International Relations
Section.
Federal Reserve Board of Governors. 1999. H.10 Foreign Exchange Rates (Weekly).
Lee, Thea. 1995. False Prophets: The Selling of NAFTA. Briefing Paper. Washington, D.C.: Economic Policy Institute.
Mishel, Lawrence, Jared Bernstein and John Schmitt. 1999. The State of Working America 1998-99. Ithaca, N.Y.: ILR Press.
Rothstein,
Jesse, and Robert E. Scott. 1997a. NAFTA's Casualties: Employment
Effects on Men, Women, and Minorities. Issue Brief. Washington, D.C.:
Economic Policy Institute.
Rothstein, Jesse, and Robert E. Scott.
1997b. NAFTA and the States: Job Destruction Is Widespread. Issue
Brief. Washington, D.C.: Economic Policy Institute.
Scott,
Robert E. 1996. North American Trade After NAFTA: Rising Deficits,
Disappearing Jobs. Briefing Paper. Washington, D.C.: Economic Policy
Institute. |
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