NCPA - National Center for Policy Analysis


March 3, 2008

In the ever growing condemnations of the North American Free Trade Agreement (NAFTA), Mexico has become the whipping boy, which stands accused of attracting firms by allowing worker exploitation.  This claim is not only untrue, it is the opposite of reality: Mexico is home to militant, high-powered unions and the most burdensome labor regulation in North America, says the Wall Street Journal.

For example:

  • Employment in most cases requires union membership -- there is no such thing as a "right-to-work" state in Mexico -- and if a worker is expelled from the union, he loses his job.
  • Promotions are based on seniority, not merit, so there is little incentive for workers to upgrade their skills or learn new technologies.
  • This harms productivity and helps explain why Pemex, the oil monopoly with one of the country's most dominant unions, registered a net loss of $484 million last year, when oil prices were sky high.

NAFTA has been central in providing greater access to capital and trade for Mexico and also an increase in information flows, but there are some things it can't cure, says the Journal:

  • Hiring, maintaining and firing a worker is so costly that employers go to great lengths to avoid taking on new employees.
  • This produces an excess of workers relative to demand, depressing wages and benefits.

In such an environment, it's easy to see why many workers end up in the underground economy where exploitation is more likely.  According to Isaac Katz, professor of economics at the Mexican Autonomous Technology Institute, "workers in the tradable sector or in businesses with foreign investment earn 40 percent to 50 percent more than those who work for companies not related to trade or foreign investment."  In other words, far from exploiting workers, NAFTA has brought about better conditions, but not for union bosses, says the Journal.

Source: Mary Anastasia O'Grady, "Wrong About Mexico," Wall Street Journal, March 3, 2008.

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