NAFTA's effect on United States employment
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The North American Free Trade Agreement's impact on United States employment has been the object of ongoing debate since the 1994 inception of the North American Free Trade Agreement (NAFTA) with Canada and Mexico. NAFTA's proponents believe that more jobs are ultimately created in the USA. They point to factors such as growth in the export industry and lower unemployment rates as evidence of NAFTA’s benevolence to U.S. workers. Opponents see the agreements as costly to well-paying American jobs in the short run. Declines in employment opportunities within manufacturing industries and increases in trade deficits are some of the negative side effects of NAFTA pointed out by the critics.
U.S. employment increased over the period of 1993-2007 from 110.8 million people to 137.6 million people, a 24 percent increase. Specifically within NAFTA’s first five years of existence, 709,988 jobs (140,000 annually), were created domestically. Proponents point out that had there been any significant negative impact on the labor force because of NAFTA, it would have been evident in the initial years. Yet, the mid to late nineties was one of the United States’ biggest periods of economic growth. Classical macroeconomic theory stipulates that when a country is experiencing economic growth (i.e. increase in GDP or GDP per capita), then there will also be an increase in the participation of the labor force.Thus, because trade liberalization ultimately contributes to increases in GDP, it in effect, helps to bring the rate of unemployment down in a country. The U.S. experienced a 48% increase in real GDP from 1993-2005. The unemployment rate over this period was an average of only 5.1%, compared to 7.1% from 1982-1993, before NAFTA was implemented.
Proponents reject the claims of some that the free trade agreement is destroying the manufacturing industry and causing displacement of workers in that industry. In the period of 1981-1995, the years from ’93-’95 saw the highest rate of job loss, even during this period of great expansion. However, the rate of job loss due to plant closings, a typical argument against NAFTA, showed little deviation from previous periods. The percentage of workers in the manufacturing industry with job loss actually decreased from 13.8 % in 1991-1993, pre-NAFTA years, to 11.8% in the years from 1993-1995. Also, US industrial production, in which manufacturing makes up 78%, saw an increase of 49% from 1993-2005. The period prior to NAFTA, 1982-1993, only saw a 28% increase. In fact, according to NAM, National Association of Manufacturers, NAFTA has only been responsible for 10% of the manufactured goods trade deficit, something opponents criticize the agreement for helping to foment. In the manufacturing sector, NAFTA yielded 43% of US manufacturing export growth and only 28% of import growth.
The most direct measurement of the impact of trade agreements on employment is the number of jobs supported by exports. It is estimated that 8500 manufacturing jobs are supported by every $1 billion in US exports. Because $12 billion of average annual gains in exports were created by expansion of North American trade, more than 100,000 additional US jobs were created. More importantly, it has been noted that in export-oriented industries where some of the lost manufacturing jobs go, wages are 13-16 percent higher than the national average.
Others agree with the notion that there has been an increase in net jobs due to NAFTA’s implementation, but believe that these net gains are coming at the price of worker’s wages. That is, high-paying manufacturing jobs are being lost and replaced by lower paying jobs and is causing wage deflation in certain sectors. However, during the Clinton administration, the sources of new job creation were in relatively high paid sectors and industries. The fall in median wages, which are often associated with the middle class factory workers, stagnated because the inflation-adjusted pay rates for existing jobs fell, not because newer jobs that replaced manufacturing jobs were low-paying ones.
NAFTA's opponents attribute much of the displacement caused in the US labor market to the United States’ growing trade deficits with Mexico and Canada. According to the EPI, the widening of the deficit has caused the dislocation of domestic production to other countries with cheaper labor and supported the loss of 879,280 US jobs. Critics see the argument of the proponents of NAFTA as being one-sided because they only take into consideration export-oriented job impact instead of looking at the trade balance in aggregate. They argue that increases in imports ultimately displaced the production of goods that would have been made domestically by workers within the United States.
The export-oriented argument is also critiqued because of the discrepancy between domestically-produced exports and exports produced in foreign countries. For example, many US exports are simply being shipped to Mexican maquiladores where they are assembled, and then shipped back to the U.S. as final products. These are not products destined for consumption by Mexicans, yet they made up 61% of exports in 2002. However, only domestically-produced exports are the ones that support U.S. labor. Therefore, the measure of net impact of trade should be calculated using only domestically-produced exports as an indicator of job creation.
78% of the net job losses under NAFTA, 686,700 jobs, were relatively-high paying manufacturing jobs. Certain states with heavy emphasis on manufacturing industries like Michigan, Ohio, Pennsylvania, Indiana, and California were significantly affected by these job losses. For example, in Ohio, TAA and NAFTA-TAA identified 14,653 jobs directly lost due to NAFTA-related reasons like relocation of U.S. firms to Mexico. Similarly, in Pennsylvania, Keystone Research Center attributed 150,000 job losses in the state to the rising U.S. trade deficit. Since 1993, 38,325 of those job losses are directly related to trade with Mexico and Canada. Opponents point out the fact that although most of these jobs were reallocated to other sectors, the majority of workers were relocated to the service industry, where average wages are 4/5 to that of the manufacturing sector.
Opponents also argue that the ability for firms to increase in capital mobility and flexibility has undermined the bargaining power of U.S. workers. Fifteen percent of employers in manufacturing, communication, and wholesale/distribution shut down or relocated plants due to union organizing drives since NAFTA’s implementation. The weakening of rights for the American labor force is one example of the “race to the bottom” theory advocated by most opponents that will result from these trade policies. Ultimately, workers are faced with the dilemma of settling for less worker’s rights because the firm always will have the ability to relocate to another country, notably Mexico, where they can attain cheaper labor and will face less resistance from workers. However, it is now common that these incentives are enough to cost American laborers their jobs regardless of the status of the labor unions.
- ^ 24 Apr. 2008 NAFTA Facts. United States Trade Representative. 2008.
- ^ a b c d e f Hufbauer, Gary C., and Jeffrey J. Scott. NAFTA Revisited: Achievements and Challenges. Washington, DC: Institute for International Economics, 2005.
- ^ Hubbard, Glenn, and Anthony P. O'brien. Macroeconomics. Upper Saddle River: Pearson: Prentice Hall, 2006. 233-234.
- ^ a b Kletzer, Lori G. Journal of Economic Perspectives 12 (1998): 115-136. 25 Apr. 2008 Job Displacement.
- ^ National Association of Manufacturers. July 2005. 28 May 2008 The Truth About NAFTA:.
- ^ Datelle, David C. Democratic Leadership Council. 1 Oct. 1997. 22 Apr. 2008 NAFTA's Effect on U.S. Jobs: a Small But Positive Impact After Three Years.
- ^ Delong, Chris, Brad Delong, and Sherman Robinson. Op-Eds. 17 May 1996. 23 Apr. 2008 NAFTA and Jobs. Remember the Giant Sucking Sound..
- ^ a b c d e Scott, Robert E. Economic Policy Institute. 17 Nov. 2003. 22 Apr. 2008 The High Price of Free Trade.
- ^ Policy Matters. 28 Apr. 2008 International Trade and Job Loss in Ohio.
- ^ Keystone Research Center. 2001. 28 Apr. 2008 Job Losses Due to Trade Since NAFTA Deepen Pennsylvania Manufacturing Crisis.
- ^ Woodhead, Greg. AFL-CIO. 2000. AFL-CIO Policy Department. 28 Apr. 2008 NAFTA's Seven-Year Itch: Promised Benefits Not Delivered to Workers.