Will Free Trade Lower Paychecks?
COULD the North American Free Trade Agreement (NAFTA) depress wages in the United States?
Organized labor frets over the prospect of smaller paychecks as the US House of Representatives prepares to vote Wednesday on NAFTA.
While many economists dismiss workers' concerns, unions claim workers have much to lose. US factory employees average $15.45 an hour, or seven times the $2.17 Mexican average.
The White House says NAFTA will eventually mean higher incomes on both sides of the border. Here's what various studies indicate:
How much impact will NAFTA have on US workers' pay?
It should be small - at least initially. But any trade agreement has winners and losers. Less-skilled workers could eventually see their pay decline. Professionals and investors should benefit.
The White House describes NAFTA as ``win-win,'' an agreement without significant losers. President Clinton quotes economists Gary Hurbauer and Jeffrey Schott, whose research indicates that ``there is no overall tendency ... for US imports from Mexico to displace low-skilled US jobs,'' despite the big wage differences.
Another NAFTA study finds mixed results. Unskilled workers and those in agricultural areas would suffer wage losses between 3.4 percent and 4.2 percent. But skilled and professional workers would see their pay rise over the next few years.
Who is right?
Free trade under NAFTA throws many American workers into direct competition with millions of Mexicans. Dr. Hufbauer and Dr. Schott, whose work generally supports NAFTA, point to the case of US truckers, who average $140 a day. With NAFTA, they will begin competing on US roads with Mexican drivers who make far less. Such jobs could feel an impact, but Hufbauer and Schott minimize the overall effect.
Longer-term, economists are divided. Among those raising caution flags is Prof. Harley Shaiken at the University of California at Berkeley. He notes that Mexicans have proved adept at performing complex manufacturing jobs, despite low wages.
For example, a Japanese-owned engine plant in Aguascalientes, Mexico, ranks No. 1 in quality worldwide among Nissan factories. Ford Escorts built in Mexico are of higher quality than those built in the US.
Will Americans be pulled down to Mexican wage levels?
No. But some analysts worry that even though Mexican workers have become far more productive, their wages aren't keeping pace.
The bottom line:
Lawyers, accountants, and others with complex skills should thrive under NAFTA. Wages of the unskilled are at greater risk.