The Impact of Free Trade Agreement with Mexico on Real Wages of Production Workers in Manufacturing in the United States
The U.S. free trade agreement with Mexico is often cited as the main cause of the recent declines in the real wages of production workers in manufacturing. This paper examines the impact of the U.S. free trade agreement with Mexico on real wages of U.S. manufacturing workers. The U.S. free trade agreement with Mexico, which also includes Canada, is commonly known as the North American Free Trade Agreement (NAFTA). But the free trade agreement with Canada is less controversial because it is not believed to have a negative impact on the U.S. labor markets. Consequently, the paper examines the impact of NAFTA on the real wages of U.S. production workers in manufacturing only from the Mexican side. The results obtained from a regression analysis suggest that real wages are significantly influenced by exports, imports, foreign direct investment, and supply of unskilled labor. More specifically, the results show that real wages of manufacturing workers are positively and significantly impacted by increases in exports and imports, and negatively and significantly impacted by increases in foreign direct investment and supply of unskilled labor. An interesting finding is the positive and significant impact of imports from Mexico on the real wages of the U.S. manufacturing workers contrary to the commonly held belief that imports are the major cause of the decline in the wages of manufacturing workers.
Southwest Business and Economics Journal, Vol. 17, 2009, 47-58.