Robert Feenstra on the powerful dynamics linking U.S. and Mexican workforces

Technology advances proceed apace while America is outsourcing jobs to developing countries. These two forces combine to increase the level of migration in the world. Much of this migration is into the U.S. by far the biggest in-migration country in the world. The net effect of this cycle is to improve middle class lives in the U.S. but worsen work prospects for poorly educated Americans.
Robert Feenstra of U.C. at Davis, who has long been a student of economic productivity, made a presentation on “Globalization and its Impact on Labor.” He goes a long way to describing the overwhelming power of forces behind the growth of low wage immigrant labor (including illegal labor) in the United States.
The essence of Feenstra’s story, leavened with information he does not include, is this:
Manufacturing labor in both the U.S. and Mexico have not benefited in the past 10-15 years even while the service workforce has benefited, by capturing the lion’s share of increases in the compensation pie.
This is in part because manufacturing growth in Mexico, expected due to NAFTA, failed to take place except in isolated areas like along the American border (Manquiladora). Thus good manufacturing jobs were not available at anywhere near the numbers needed for the ocuntry’s work population. In part, a disproportionate share of economic gains went to service, not manufacturing jobs. The manufacturing sector was also hurt by American and Chinese competition.
Relatively disadvantaged workers in both countries have been making hard decisions on where or if to work. With economic distances expanding between workforce segments, making catch-up less probable, choices narrow down to if and where to migrate.
Mexicans, especially those at the lower end of that country’s education scale, have little prospects of rewards in Mexico and have come to the U.S. to, in effect, make middle class life more comfortable for Americans. Poorly educated American workers have been withdrawing at increasing rates from the workforce, either into part time work, idleness or disability pensions.
Here in the style of Powerpoint bullets, is the story:
One, technology is concentrating economic rewards in the service sector workforce and leaving production (i.e. manufacturing) stagnant. This is happening in developed as well as developing countries – The U.S. as well as Mexico. In the U.S. service workforce relative wages compared to manufacturing wages grew strongly since the mid 1980s.
Two, production jobs in the U.S. are being off-shored and an increasing number of service jobs as well. The next effect is the increase the average compensation of better educated services workers – in both the U.S. AND in the countries providing the off-shored labor.
Three, this offshoring has been responsible for about 1% of the 2.5% – 4% annual productivity growth in the U.S. economy. This is a big deal.
Fourth, in Mexico manufacturing worker wages have not grown appreciatively with NAFTA, which was supposed to set off an economic boom. Feenstra does not discuss farm workers in Mexico, but one gets the impression that both farm and manufacturing wages in Mexico have lagged.
Fifth, there has been a huge transborder shift of workers at the lower end of the wage and education scale.
Mexican labor has moved into the U.S. just as the most vulnerable American workers have been withdrawing from the American workforce. Not addressed by Feenstra, the labor force participation of poorly educated blacks is very low.
Some 70% of the American workforce with less than 8 years of education are foreign born, and 22% of the workforce with 8 to 11 year’ education.
And American workers are heading out the door. The SSDI (disabled worker insurance program) of the U.S. has been growing – very sharply in the past few years. Those exiting the labor market for federal disability pensions are largely manufacturing workers with limited education. In 1995, there were 1.1 million SSDI awards made. In 2004, there were 2.2 million made.
The European Union has sought from the beginning to stem migration from poorer new members by systmatically suppprting infrastructure and manaufacturing growth in the new members.
See Feenstra here.

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