Globalization and Mexican Labor Markets - Migration, Trade, and Development: Proceedings of a conference hosted by the Federal Reserve Bank of Dallas, October 6, 2006

M ore than nearly any other phenomenon, globalization has had a profound effect on the Mexican economy. Mexican labor markets have been particularly affected. Globalization integrates labor markets through trade, capital flows, and migration. Recent studies that mainly focus on Mexico's manufacturing sector suggest that North American economic integration (particularly Mexico's integration with the United States since the North American Free Trade Agreement) has had potentially positive implications for Mexican workers. Rising trade has coincided with rising Mexican wages (relative to U.S. wages) and falling wage inequality within Mexico. In terms of North American integration, the perceived competition between Mexican and U.S. workers may not be as accurate as popularly believed. Recent research suggests that Mexican and U.S. workers are complements rather than substitutes. Growing economic integration suggests that North America could and probably should be thought of as a unified market in terms of production. As is increasingly understood, however, the net gains from integration may overshadow important losses for many workers. These losses explain persistent popular opposition to NAFTA and economic integration. The gains have been slow to arrive in many of Mexico's rural areas, affecting political support for candidates (López Córdoba 2006). Rising U.S. border enforcement also may hide NAFTA's benefits because the wages of Mexican workers decline when enforcement increases. Further, while integration may bring technology, increased demand , and trade, it also increases Mexican susceptibility to U.S. economic fluctuations. Mexican manufacturing employment closely followed the drop in U.S. manufacturing employment during the 2001 U.S. recession. Three main policy recommendations emerge from these studies. First, Mexico