Mexico must deregulate in order to improve productivity

Mexico's export manufacturing plants, or maquiladoras, boomed for a while following the signing of the North American Free Trade Agreement (NAFTA) a decade ago. But employment has declined in recent years.

According to William C. Gruben, vice president and director of the Centre for Latin American Economics at the Dallas Federal Reserve Bank, Mexico is no longer the low-wage employer it once was and must take steps to improve productivity in order to compete with other industrial nations.

Textiles and apparel account for a little more than one-fifth of maquiladora employment but were responsible for almost one-third of overall maquiladora job declines. Those jobs have moved to other Caribbean countries, as well as China. But Mexico has been slow to move o the next step in the production process.

In 1982, manufacturing shop-floor workers' wages in Korea, Taiwan and Singapore were all less than Mexico's.

By 2002, these Asian countries' wages ranged from double to more than triple Mexico's; the Asian countries upgraded worker skills at a rate that Mexico did not.

According to a study cited by the U.S. General Accounting Office, manufacturing wages in Mexico have lately exceeded those of the Dominican Republic by almost 67 percent and are about 92 percent higher than in Honduras.
Mexican wages have gone up along with Mexican labour productivity. The government has moved to promote productivity, but increasing world competition requires more, says Gruben. Areas where these changes could come include education, energy, labour and tax policy.

Source: William C. Gruben (Federal Reserve Bank of Dallas), Mexico Is Frittering Away Its Nafta Gains, Americas, Wall Street Journal.

For text http://online.wsj.com/article/0,,SB107179895835802000,00.html
For more on Mexico http://www.ncpa.org/iss/int/

FMF Policy Bulletin/ 23 December 2003