The North American Free Trade Agreement Understanding the Consequences on Labor
Background on NAFTA The North American Free Trade Agreement was a proposed to aid not only the United States, but also Canada and Mexico. Despite this intention, there has been numerous negative side effects. At the same time, one cannot ignore the Peso Crisis, a financial crisis that occurred in Mexico during the 1990’s. Finally, it is important to recognize that this is not research upon the economic benefits of the country as a whole, rather the individual and painful effects this bill had on Mexican labor.
The Peso Crisis In his book, “The Return of Depression Economics”, Paul Krugman outlines the basic elements of the Peso Crisis. That is, there was a necessary devaluation of as a result of enormous deficits. Moreover, the Mexican government was using a “pegged currency” which means that the peso’s value was directly correlated with the United States dollar. At the same time, the current account deficits were soaring which also showed that the peso was appreciating at an increasing rate. At one point the current account deficit reached nearly 30 billion.
Wage Growth In understanding the main living conditions of Mexican laborers, one must consider their basic wage. According the Carnegie Endowment for International Peace, the average wage of Mexican workers has decreased significantly as a result of both the North American Free Trade Agreement as well as the the rapid devaluation of currency, which would also devalue the average Mexican wage. In short, one can not exactly pinpoint the North American Free Trade Agreement as the only cause of wage decline, but we can see it as at least a major cause of this sad weakening of the Mexican standard of living.
Income Inequality The separation of classes, otherwise defined as income inequality, augmented with the passage of the North American Free Trade Agreement, but researchers at the United Nations are quick to point out that is increases is likely not solely due to NAFTA, rather a slow-growth economy. Moreover, the relation of the Untied States economy with that of the Mexican economy reveals that the 2000-2001 recession is also to blame for income inequality.
Foreign Direct Investment From 1994 to about 2004, the average foreign direct investment as a percentage of gross domestic product was approximately three percent. Much of this foreign direct investment went straight into cheap low-wage and low-skill jobs such. As a result, the average wage has been in decline and on the opposite end, the income inequality has been increasing. It is also important to note that these funds helped improve the overall Mexican economy, but it does not appear to overwhelmingly help the majority of Mexican citizens.
Employment According the the Carnegie Endowment for International Peace, there has been a small net gain in employment since NAFTA, yet their paper “NAFTA’s Promises and Realties” also unveils that approximately 1.3 million agricultural jobs were lost as a result of competition from United States agricultural enterprises.
Life within Mexico City David Lida describes the economics conditions within Mexico City has brutal, discriminatory and unjust. It is my belief that the average citizen of Mexico City endures the an everyday tragedy which must be considered when confronting the life of a Mexican worker. First “Only 12 percent of the working population earns more than twenty-three dollars a day” as well as a minimum wage of only five dollars per day. Moreover, many things still cost relatively same in comparison to the United States. Later on, Lida explains outright discrimination by gender from companies as they seek to maximize their own gain. Another key element is the huge disparity in wealth, but also how monopolies pervert the standard of living. For example, Telemex charges approximately fifty percent more than the majority of OCED nations, but the Mexican people do not receive fifty percent better quality rather it is price gauging. This injustice is felt throughout Mexico and one can better understand that this practice must be reversed as well as the downfall of the Mexican worker.
Aggregate Effect After consulting the effects of the Peso Crisis, wage growth, income inequality, employment, and foreign direct investment, we can see the consequences of this free trade policy. Although evidence has proven NAFTA cannot be blamed for the slight growth in income inequality, rather the nearly dead economy. Also, we can see a direct correlation between wage decline and the signing of the North American Free Trade Agreement. There is also a direct correlation on the loss of 1.3 million agricultural jobs and NAFTA., which is likely to due to the inability of Mexican agricultural to compete with the United States agricultural firms .
References Krugman, Paul. The Return of Depression Economics. 2009. New York: W. W. Norton & Company Inc. “NAFTA’s Promise and Realities”. 2004. Carnegie Endowment for International Peace. “The Dynamics of Income Inequality in Mexico Since NAFTA”. 2009. United Nations FDI Statistics. 2009. UNTACD. Lida, David. First Stop in the New World: Mexico City, The Capital of the 21st Century. 2008. New York: The Penguin Group.