Dean Baker (an actual economist): NAFTA Lowered Wages, as It Was Supposed to Do

[brentspeak]

If, by some completely random chance, you happen to stumble upon some anonymous internet shill who tries to convince you otherwise using their own "original research", you can cite Dean Baker's article -- and deep-six the shill into the laughter bin.

http://www.nytimes.com/roomfordebate/2013/11/24/what-weve-learned-from-nafta/nafta-lowered-wages-as-it-was-supposed-to-do

Nafta Lowered Wages, as It Was Supposed to Do

by Dean Baker

Given the trends in U.S. trade with Mexico over the last two decades, it is strange that there is much of a debate over Nafta's impact on wages. At the time Nafta was passed in 1993 the United States had a modest trade surplus with Mexico. In 2013 we are on a path to have a trade deficit of more than $50 billion. The $50 billion in lost output corresponds to roughly 0.3 percent of gross domestic product, assuming the same impact on employment, this would translate into more than 400,000 jobs. If each lost job would have led to half a job being created as a result of workers spending their wages, this would bring the total impact to 600,000 jobs.

Of course some of the shift from surplus to deficit might have occurred even without Nafta, but it would be difficult to argue that Nafta was not a major contributing factor. After all, one of the main purposes of the agreement was to make U.S. firms feel confident that they could locate operations in Mexico without having to fear that their factories could be nationalized or that Mexico would impose restrictions on repatriating profits. This encouraged firms to take advantage of lower cost labor in Mexico, and many did.

This can produce economic gains; they just don’t go to ordinary workers. The lower cost of labor translates to some extent into lower prices and to some extent into higher corporate profits. The latter might be good news for shareholders and top management, but is not beneficial to most workers.

Lower prices are helpful to workers as consumers, but are not likely to offset the impact on wages. To see this point, imagine that Nafta was about reducing the wages of doctors by eliminating the barriers that made it difficult for Mexican school children to train to U.S. standards and practice medicine in the United States...

[gollygee]

1. That seems so breathtakingly obvious

I have a neighbor who is a manager at an auto parts manufacturing plant (one of the few still here) and he was complaining about their union employees expecting to make more than $14 an hour. And benefits! How dare they expect that? What a jerk. I assure you that that plant's employees made a good, solid wage before NAFTA. I could repeat that about every single damn plant in town - and again, those are just the ones that are still here.

[peecoolyour]

2. "Socialism for capital and free markets for labor"

The NAFTA doctrine of socialism for capital and free markets for labor also drove U.S. policy in the Mexican peso crisis of 1994-95, the Asia financial crash of 1997 and the global financial meltdown of 2008. In each case, the U.S. government organized the rescue of the world’s bank and corporate investors, and let the workers fend for themselves.

In terms of U.S. politics, the passage of NAFTA signaled that the Democratic Party—the “progressive” side of the U.S. two-party system—had accepted the reactionary economic ideology of Ronald Reagan

http://www.epi.org/blog/naftas-impact-workers/

[pampango]

12. Good point. One of many reasons that the EU works better than NAFTA: capital and labor can both move

Of course the mythical North American Union is one of the rights favorite whipping boys but it is nice to mention it every once in a while just so they can whip themselves into a frenzy again. Thankfully, European progressives are not so screwed up as to be scared by the freedom to work across their continent. The same, of course, cannot be said for the European far-right about as freaked out by the EU as our far-right is by the mythical NAU.

[Pooka Fey]

15. European Neo-Liberals LOVE circumventing FR labor law to bring in low wage Eastern Europeans

to do work that tens of thousands of unemployed French are highly qualified to do, BUT at French salary levels AND with FR labor protections.

French people all across the political spectrum, who have eyes in their heads, have noticed how EU Neo-Liberalism has destroyed French employment and wages to benefit the Multinationals and their 1% CEO's.

Your post is so incredibly wrong. And it's clear that you think you know what you are talking about, too!

[pampango]

17. The far-right National Front and UKIP must have better "eyes in their heads" than the left

since they are the leading political voices fighting to close borders and withdraw from the EU. The fact that you call the people who favor a united Europe 'neo-liberals' does not make it so, particularly when it is the far-right that they are fighting against. If you think the far-right is fighting against the "Multinationals and their 1% CEO's" you are welcome to your opinion.

[Pooka Fey]

18. This is bullshit. You're either lying or just playing the "useful idiot"

Attempting to smear FR unions and the FR Left with ugly labels like UKIP and the Far Right is pretty pathetic, but we both know you can't argue on the merit of the facts. The only argument you have is name-calling.

You understand nothing about Europe. I know it. You're just another American who reads the UK financial press, and then decides that you "understand" what drives Europe. What a pathetic joke. FYI, London isn't Continental Europe.

The greatest Neo-Liberal tactic EVER CREATED was to figure out that labeling the all voices calling labor and worker protections as "Extremists Far-Righter's (i.e. immigration haters nudge nudge wink wink)".

What a bonanza for the Corporatists! The truth about a situation cannot be determined by forcing it into a convenient thought-stopping "OH THE FAR RIGHT LIKES IT SO ITS EVIL"

Many Many Many Europeans all across the political spectrum oppose the Neo-Liberal MultiNational Corporate agenda of driving down wages, and weakening European social protections by bringing in under-the-table cheap labor from the poor former Soviet republics.

[pampango]

19. Fine. If you want to align yourself with the National Front, go right ahead. Or do you

differentiate what you want from what they want?

... labeling the all voices calling labor and worker protections as "Extremists Far-Righter's ...

That may be but what progressive would ever call "labor and worker protections" as the province of the far-right? IMHO, only those on the far-right think that the far-right actually cares about "labor and worker protections".

You understand nothing about Europe. I know it. You're just another American who reads the UK financial press, and then decides that you "understand" what drives Europe. What a pathetic joke.

I like and respect you, too.

The truth about a situation cannot be determined by forcing it into a convenient thought-stopping "OH THE FAR RIGHT LIKES IT SO ITS EVIL"

Perhaps not the total truth but knowing what the far-right likes is always good to know if you are a progressive.

[Pooka Fey]

20. Did you learn your straw-man techniques in your MBA program?

[pampango]

21. I asked "do you differentiate what you want from what they want?"

If you disagree with the National Front on most of their agenda, as I assume you do since you are here, it should be easy to state your differences.

[Pooka Fey]

22. I argue for Labor and Social Protection in the EU. You call me Front Nationale

Fuck your post.

[pampango]

23. If you "argue for Labor and Social Protection in the EU" stop posting FN talking points about

immigrants.

Immigrants are not to blame for labor and social problems. France's immigrants are 11% of the population; about the same as Germany and much less than Sweden 16%, the US 14%, the UK 12% and Canada 20%. Immigrants are an asset not a liability. Blaming them is a right-wing tactic. We get it all the time in the US from our tea party. Your Front Nationale does the same thing.

http://en.wikipedia.org/wiki/List_of_countries_by_immigrant_population

[Pooka Fey]

39. Impossible to argue against Worker and Social protection. So you scream "Front Nationale"

Once again, you have no idea what you are talking about.

Legal immigrants to France qualify for work papers which afford them the identical protections as French workers - same pay, same retirement benefits, same 35 hour work week. Whether or not someone is an immigrant is irrelevant to this discussion.

You've rammed your straw-man "immigration" talking point on this discussion for one of two reasons:

1) You don't give two shits about immigrants, but you need to promote your Neo-Liberal agenda by stealth because it's DU

2) You're one of the "Useful Idiots" of the Corporatist Neo-Liberals because you desperately need to believe in your own so-called moral superiority. You're perfectly comfortable with throwing your working class neighbors under the bus in order to obtain your supply of emotional warm fuzzies.

Your online MBA program obviously didn't teach you about EU temporary employment agencies which bring in Eastern Europeans to work on construction projects in France, and pay them 20 cents on the Euro of what the 10's of thousands of long term unemployed French workers would earn for the same work.

These temporary foreign workers are housed in disgusting squatter's lodgings 6-8 to a room, their temp agencies regularly withhold their pay or screw them out of their last month's paychecks, these workers are threatened or just illegally fired if they are so much as seen talking to one of the French union reps who visit construction job sites.

Let me be very clear: You are part of the problem if you think that these employment practices are acceptable.

Good job using Lefty arguments to push your Neo-Liberal anti-Labor anti-Social agenda though.

Goodbye.

[pampango]

40. Another clairvoyant. How do you know I don't care about immigrants?

You don't give two shits about immigrants ...

The US has many "temporary" and 'undocumented' foreign workers. Most liberals do not blame them for the squalid conditions many of them live in or how they are taken advantage of by unscrupulous employers. We blame our government for not dealing with the problem.

You don't seem to be placing much blame of the government's role in this; just adopting a "foreign workers are bad" talking point.

[Pooka Fey]

41. At this level of dumb, discussion is impossible. Goodbye.

[TheKentuckian]

44. The government won't deal with the problems because they are about lowering wages.

The parties differ mostly on process.

The real truth is if wicked employers couldn't lord illegal status over migrant workers and in fact would be in deep trouble themselves for wage theft the entire conversation would undergo existence failure, there is no labor shortage and if there was for the same money 999/1,000 an American would get the job and there would be little market. People would immigrate pushed by very different drivers and the number would shrink.

TeaPubliKlans want the status quo with turrets mounted on stupid walls with maybe even more for the migrant to lose to squeeze them harder, some Democrats want to do all kinds of convoluted stuff to address the individual side but nobody is serious about the employer side and protecting the worker (kudos for our side for some give a fuck about the person but negative 10,000 for protecting the person as a worker especially in this situation).

You can't have a worker underclass of this magnitude, it completely distorts the labor market almost like slavery and prison industries.

[hifiguy]

24. Always. nt

[truebluegreen]

26. +1

Good post; welcome to DU

[djean111]

3. It is all too obvious that the current NAFTA crap being shilled is just lipstick for the pig that

is the TPP. And TTIP.
Not working. Sorry.

[Scootaloo]

31. it goes right up there with te people claiming that kissinger isn't a war criminal

Opponents of TPP "just hate obama" and people who maintin that kissinger is a war criminal "just hate clinton."

it's very fascinating.

especially when these peopel are ht eoens accusing others of "worshipping" politicians or "great men"

[Warren Stupidity]

4. No no no we had the Internet boom

Because NAFTA, I read it right here on DU, plus that OP had pictures and yours doesn't. So there.

[DanTex]

5. No, no, no! I found some charts on google. This is all wrong.

[Recursion]

34. I know. God forbid we use data in economic arguments

Stories about my uncle are a lot better of a basis for policy, right?

[DanTex]

35. Data is useful in the hands of people who know how to use it.

[Recursion]

6. Please post median wages in 1994 and today

You can look them up at the Bureau of Labor and Statistics.

They're higher today than before NAFTA.

That's the easiest way to show they fell, btw: list median non supervisory wages (or any other category you prefer) before NAFTA and today.

[erronis]

9. Recursion, look it up, recursion ----

Which set of numbers do you want us to deal with? It is so easy nowadays to include a URL to what you want us to look up. Of course, if we find our own set of numbers, we're going to have to go back to this discussion.

Based on your comment, median wages are "higher today than before NAFTA". Since you didn't bother to include the source for your comment, let's take it at your face value. Could you tell us if it included any inflationary adjustments (different for the US than for other NAFTA participants.)

Then you say "That's the easiest way to show they fell...". I'm just a confused reader, I guess. Higher vs. fell - what ever.

[Recursion]

27. when I say wages I always mean "real wages"

But, fair enough, I didn'the say "real" in that post.

Real hourly non supervisory wages are higher today than in 1993.

[cui bono]

10. Why are you asking someone else to look up something and post it?

[Recursion]

28. Because I've looked it up and posted it dozens of times

And somebody else already did in this thread, and I'm right. And it doesn't matter."NAFTA hurt workers" is religious dogma here.

[Romulox]

11. If your claim is true, why didn't you post it to your OP on the subject? You cited *household*

income, there.

[Recursion]

25. I picked one metric of several

I've posted the wage increase numbers several times before, and I'll probably do it here too if OP doesn't.

[Romulox]

42. It's not too late; where is this imaginary data? nt

[Recursion]

43. Pampango posted it below

Wages are up as anemically as incomes are.

[truebluegreen]

29. You did post it elsewhere: +1.05 % gain in wages in 20 years wasn't it?

Costs on the other hand....

[Recursion]

30. I posted household income recently, which is different from wages

Pompango saved me the trouble and posted wages in this thread, and they are higher today than in 1993. The 1.5% increase in inflation-adjusted median household incomes in the 20 years since NAFTA is (slightly) larger than the increase in inflation adjusted household incomes in the 20 years before NAFTA.

The word "real" in the context of money means "adjusted for changes in costs".

[truebluegreen]

33. "adjusted for changes in costs"

doesn't typically include costs that were not in the original "market basket"--like internet access, cell phones, and so on. And I find it very hard to believe that it includes higher education or medical costs. Trying to claim that Americans have received a very small raise as opposed to a massive cut in pay in the last 20 years is just another example of lies, damned lies and statistics.

[Recursion]

36. The CPI does include education and health care

Attempting to re-balance the basket based on new spending patterns produces what's called a "chained" CPI. Ask DU what people think about it.

[tkmorris]

37. To be fair, "chained CPI" can be a useful metric

The trouble is that people who want to adjust the CPI in this fashion usually have an agenda in mind when they do so. It is entirely possible to create a chained CPI that shows a much higher figure than the official one, just as it is possible to create one that is lower. Here at DU the topic has arisen almost exclusively within the context of those in government who want to use it to adjust SS increases over time, and have a clear motive to cut spending there as much as possible.

[Recursion]

38. That's a fair point; there's not "a" chained CPI but several

Though for that matter BLS does make some adjustments over time within its mandate to do so.

[Peregrine Took]

8. Read how Alan Greenspon spoke glowingly about the benefits of "worker insecurity."

See second paragraph -

http://www.counterpunch.org/2014/02/28/on-academic-labor/

[MisterP]

13. these types think Haiti's wages are too high

http://www.theguardian.com/global-development/poverty-matters/2013/dec/31/haiti-minimum-wage-increase-ignites-row-textile-industry
http://www.businessinsider.com/wikileaks-haiti-minimum-wage-the-nation-2011-6

[pampango]

14. Baker does not say that American wages were lowered, which shows he is a smart actual economist.

And thank you, brentspeak, for the obligatory 'shill' reference applied to anyone who dares disagree with you.

[Recursion]

32. I only just noticed this: before NAFTA, AHETPI always fell during recessions

And after NAFTA it always rose during recessions. That's probably significant.

[PETRUS]

45. Correlations

Here's what came to mind when I saw the graph: The earlier recessions in the graph above followed efforts to combat price increases. Note the rising rate of inflation and the Fed's hikes in interest rates just prior to each. Reducing wages was more or less a goal. The last two recessions were different; they were the result of burst asset bubbles (tech/dot-com in the 90s, real estate in the 00s). These are nearly opposite in character - inflation is the result of excess demand, a popped asset bubble represents a sudden and unplanned loss of demand.

Another relevant point about the whole time period in question is that it represents a new era in international trade. While the US was party to negotiations that lowered tariffs in prior decades, the deals struck in the mid to late 60s and again in the 70s resulted in tariff reductions orders of magnitude higher than before. This also corresponds to the time when wage growth began to severely lag productivity growth and the US began running ever higher trade deficits.

Dean Baker is correct that NAFTA was designed to put downward pressure on (manufacturing) wages. It's also true that a trade deficit itself puts downward pressure on wages (a trade deficit is demand leaving the country; if that same demand remained within our borders that would create jobs, tighten labor markets and put upward pressure on wages). Our trade deficit went from less than $100 billion in 1993 to over $700 billion at the peak of the real estate bubble, it's about $500 billion now. The wage growth we saw in starting the late 90s is largely attributable to the demand created by the asset bubbles, and policymakers that were less fearful and twitchy about inflation; in other words, in spite of - not because of - NAFTA (our balance of trade with both Mexico and Canada has gotten worse). This is what the data says to me.

[BeanMusical]

16. Kick and R.