Study: NAFTA raised pay here and abroad

[Recursion]

http://www.washingtonpost.com/blogs/wonkblog/wp/2012/11/12/study-nafta-raised-pay-here-and-abroad/

Economists Lorenzo Caliendo of Yale and Fernando Parro of the Federal Reserve built a trade model to analyze how the agreement changed the level of trade between the three countries and their residents’ welfare levels. They find that the effects of NAFTA dwarf those of any other agreement, with greater effects than all other tariff reductions undertaken by the three countries put together.

All three countries saw real wages increase as a result of NAFTA. The effects in the United States and Canada, however, are fairly mild. Wages in Canada grew 0.96 percent, while U.S. wages grew 0.17 percent. That’s something, and given that U.S. wages have been stagnant or falling in recent decades, any gains are good news.

But the real success story is Mexico, where wages grew 1.3 percent due to NAFTA. That’s to be expected, since trade with Canada and the U.S. is a more important part of its economy than, say, trade with Canada and Mexico is to the U.S. It also saw the biggest tariff reductions of the three, further amplifying the effects. 1.3 percent isn’t a ton, and the productivity gains the country has seen since have disappointed some former advocates. But it’s not nothing.

Trade is never as simple as people like to make it out to be. It tends to improve wages, but in a disruptive way for a lot of individual workers.

[Spider Jerusalem]

1. "disruptive way for individual workers"

that makes me think of Paul Krugman's pro-free-trade comments:

The basic Ricardian model envisages a single factor, labor, which can move freely between industries. When one tries to talk about trade with laymen, however, one at least sometimes realizes that they do not think about things that way at all. They think about steelworkers, textile workers, and so on; there is no such thing as a national labor market. It does not occur to them that the wages earned in one industry are largely determined by the wages similar workers are earning in other industries. This has several consequences. First, unless it is carefully explained, the standard demonstration of the gains from trade in a Ricardian model -- workers can earn more by moving into the industries in which you have a comparative advantage -- simply fails to register with lay intellectuals. Their picture is of aircraft workers gaining and textile workers losing, and the idea that it is useful even for the sake of argument to imagine that workers can move from one industry to the other is foreign to them.

http://web.mit.edu/krugman/www/ricardo.htm

[doc03]

2. I don't buy that bullshit n/t

[HooptieWagon]

7. Agreed, its bullshit.

I read recently that real wages in Mexico have fallen from $1.32/hr to $.45/hr. Real wages have fallen in the US, I don't know about Canada.
Free-traders like to tout GDP figures, etc, as "proof" that free-trade works...but closer examination of the figures always show any gains go to the top, and middle and poor classes see declines.

[leftstreet]

3. And they know what wages would have been without SHAFTA, how?

What a pile of bullshit

[PETRUS]

4. The study is flawed.

From the CEPR:

"For example, the study explicitly assumes that there is only one type of labor. (The bottom of page 26 explains that in the modeling exercise there is "one wage per
country.&quot This simplifying assumption can be useful for some purposes, but if the question is whether NAFTA might have hurt less-educated workers (e.g. autoworkers and steelworkers) to the benefit of more highly educated workers (e.g. doctors and lawyers), it cannot be answered with a model where there is one type of labor.

This upward redistribution is exactly what fans of the Stolper-Samuelson theorem would expect from a trade agreement like NAFTA. Therefore this model can not be used to tell us whether NAFTA would have had one of the negative effects predicted by economic theory.

The other big item missing from this model is the impact of stronger patent and copyright protections. NAFTA required Mexico to develop a U.S. style patent system which substantially raised the cost of prescription drugs and other products in Mexico. This model makes no effort to measure the impact of this increased protectionism on the Mexican economy directly, or indirectly on the other two economies. Insofar as this interference with the free market led to higher prices and increased distortions, it would be expected to slow growth, but obviously that effect cannot be picked up in this model."

Read more: http://www.cepr.net/index.php/blogs/beat-the-press/more-nafta-pushing-at-the-post-you-cant-find-wage-inequality-in-a-one-wage-model

[Recursion]

6. NAFTA definitely hurt less-educated workers to the benefit of more highly educated workers

Which is why when Clinton was selling it, he always tied it to increasing educational opportunities for displaced workers. Which Congress then gutted. Sigh.

But, yes, as a rule of thumb, trade increases median wages and increases wage inequality, which is why when it's done successfully it also involves job training and redistribution or "predistribution" of some kind.

[PETRUS]

10. Trade is a fine idea

But increasing inequality is not inevitable. The results depend on how you structure the trade agreements. Actual free trade - unimpeded movement of labor, capital, goods, and services between two countries - is one option. We don't do that, though. NAFTA and similar agreements contain the word "free" to help sell the policy to the public, not because it's an even remotely accurate descriptor. Our trade agreements are specifically designed to benefit particular (and very deep pocketed) interests and redistribute wealth upwards.

[marmar]

11. ^ This .....

The WaPo piece is scant on details of the study, accidentally on purpose.

[PETRUS]

13. ...

[Va Lefty]

5. Yeah,

And the Voting Rights Act of 1965 opened the door for massive voter fraud

[RepublicansRZombies]

8. brought to you by Koch University

n/t

[bemildred]

9. Horseshit. nt

[ismnotwasm]

12. No it isn't simple

But to bring up NAFTA, and use Mexico as an example without mentioning CAFTA, is at best, disingenuous.

Here is a PDF report from the stop CAFTA coalition.

http://www.cispes.org/documents/DR-CAFTA_Effects_and_Alternatives.pdf

[pampango]

14. Studies are for republicans. I believe what I believe.