Mexico is gaining jobs, not wages

In 2009, in the wake of rapid inflation, Chinese unit labor costs were 72% of Mexico’s. (See page 19 at the link.) By early 2010, Chinese unit labor costs had risen to 86% of the Mexican level, and Mexico started to export cars to China. For some goods, landed costs (i.e., the cost of manufacturing and moving to the mainland U.S.) are much cheaper in Mexico than in China.

If you only look at the Chinese side, there seems little prospect of these trends turning around. China is experiencing bad labor shortages. Moreover, China has an inflation problem (the strategies described in this post seem to be hitting their limit) and its low inflation of 3% is not much lower than Mexico’s higher-than-expected 3.9%. Meanwhile, the peso is falling, while the yuan is likely to head nowhere but up. (If that turns out to be wrong, expect bad political consequences.)

On the other hand, if you look at the Mexican side, the reason Mexico is gaining competitiveness is that wages are flat. And flat at a low level. The good news is that Mexico is seeing rapid employment growth (see chart below) but Mexico no longer has endless millions of peasants to pull into the cities. Job growth is a good thing, of course, but it can go only go on for so long. (Mexico rebased its employment measures in 2010; thus the two indices.)

Translation: this is good news for Mexico, but it is a one-time thing. Without productivity growth, either within industries or by shifting into new products, Mexico wll remain relatively poor.

Implication: if the U.S. economy ever picks up again, so will emigration.

Omission: the effect of violence and extortion. The jury is out.

Comments

[Gabriel Aguilera]

Compa,

I just did a border tour in El Paso. The detention center was empty. Imagine that? I think you're spot on in this piece.

However, the costs of crossing the border are certainly higher these days. Simply put, the gringos are putting more resources -- legal and material -- into controlling the border, which raises the costs. A low-paying job, in other words, might be relatively better than the risk of crossing cartel-controlled territory...

[Andrew R.]

Okay, time for the medievalist to ask the modernist a question:

It seems to me that a growing manufacturing sector would lead to a growing class of people who are extremely wealthy from manufacturing. Moreover, it seems like this class of wealthy would probably have a fairly substantial interest in a stable Mexico. Finally, I think that those with scads of money from Mexico's (legitimate) exports would wind up with more indirect influence on the state and federal governments than the narcotraficantes, and thus the state might have a greater interest in restoring something of a semblance of order to the northern states.

Is any part of this analysis dead wrong?

[Noel Maurer]

Nope. The short version is that it's correct. Frex, the PAN pushed through corporate tax hikes, and the PRI has just come out publicly in favor. This is possible in part because big companies realize that they have a stake in greater public revenue.

The longer version is that it misses three details: impact, time, and difficulty.

Impact: so far, despite recent events in Michoacán, the crime wave hasn't affected the big companies directly.

Time: political change takes time, especially in a democracy.

Difficulty: the state hasn't exactly abandoned northern Mexico. Quite the reverse, actually. It's just that getting a handle on organized crime is incredibly difficult, especially for a state with such a long history of institutionalized corruption and insufficient public revenues. The manufacturing elite clearly prefer stability ... but has no more idea how to get there than anyone else.

In the long run, assuming we don't all wind up serving the robots, I'm optimistic. But the long-run is, as you know, long.

[Noel Maurer]

Gabe: did you get any pix of the detention center? That's ... astounding. I mean, it's what you'd expect, given the statistics and all ... but that's still absolutely astounding.

[Jan-Albert Hootsen]

Hi Noel,

I recognize Gabe´s observation. Recently, during a visit in Tijuana, I visited several transfer centers for deported Mexican migrants. They were all empty, with only a few small groups coming in every week. I visited the places where migrants normally (such as the old cathedral and the small gorge near Playas) gather to be led over the border: hardly anyone. Migration in Tijuana has slown down to a very small trickle at best.