Bloomberg View: The Texas-Size Wage Gap; a Nafta Milestone
THE LONE STAR STATE OF EMPLOYMENT
Texas created almost 250,000 jobs in the past two years, nearly as many as the other 49 states combined. State leaders, including Governor Rick Perry, credit that success to low taxes and a business-friendly regulatory approach. But to a sizable degree, its booming payrolls are the result of hard-to-duplicate factors. Texas is one of the youngest U.S. states, with a median age of 33, almost four years below the national average. That means it is blessed with a consumption-driven economy, full of young adults renting their first apartments. As families expand, their needs create thousands of jobs in retailing and manufacturing.
In high-skill professions, such as management and petroleum engineering, Texas salaries often exceed national norms. It’s a different story for unskilled labor and service employees. Dishwashers in Texas averaged $7.90 an hour in 2009, 10.3 percent below their peers nationwide. Texas sewing-machine operators made do with $9.35 an hour, 12.6 percent below the 50-state average. Some 9.5 percent of hourly workers subsist at or below the federal minimum wage of $7.25 an hour, according to the U.S. Bureau of Labor Statistics. That leaves Texas tied for the largest share of the population earning no more than the minimum wage.
That wage gap “matters a lot” in fueling job growth, says Mark Dotzour, chief economist at Texas A&M’s Real Estate Center, an academic research group financed with real-estate license fees. As he explains it, companies are leaving higher-cost states and moving to places where they think expenses will be lower. That’s not a formula that the other 49 states could, or should, copy.
There are other paths to follow for robust job creation. Congress should allow companies sitting on overseas profits to bring those earnings home at a corporate-tax rate lower than the current 35 percent in exchange for increasing worker head counts. Another promising initiative is the Layoff Prevention Act, which Democratic Senator Jack Reed recently introduced, to encourage more states to have work-share programs like the one in his home state of Rhode Island. The Reed measure would allow states to channel federal unemployment money to companies that reduce workers’ hours instead of laying them off. In return, workers would make up some of the lost wages with partial unemployment benefits. These solutions are replicable in a way that Texas’ factors—no matter how beneficial—are not.
THE 18-WHEEL SYMBOL OF FREE TRADE
The North American Free Trade Agreement came to a satisfying if tardy conclusion on July 6, with the resolution of a long-simmering dispute between the U.S. and Mexico over long-haul, cross-border trucking. By itself, the trucking deal, a three-year pilot program, is modest. But it represents a milestone in the economic integration of North America.
Although Nafta came into effect 17 years ago, the trucking deal was bogged down by concerns over border security and opposition from the Teamsters Union and independent truckers, who fear their jobs will be jeopardized by low-wage Mexican competition. Neither point is irrational—the cross-border drug trade is thriving, and Mexican long-haul truckers commonly earn about half the wages of their U.S. counterparts. Perhaps in deference to such fears, the Obama Administration announced the agreement with little fanfare.
The tentativeness was unwarranted. In the long run, the trucking agreement will knit together the countries of North America by reducing friction in the movement of goods and increasing trade and economic activity on both sides of the border. Since Mexico joined the U.S. and Canada in Nafta in 1994, merchandise trade among the three partners has more than tripled, to almost $1 trillion annually. U.S. potato farmers, along with producers of pork, cheese, and other goods, can look forward to reduced Mexican tariffs with the resolution of the trucking deal.
Higher wages and wider prosperity in Mexico are very much in the U.S. national interest. Canada has only one-third the population of Mexico, yet because of its affluence, it’s the top U.S. trading partner. The easiest way to ease thorny issues such as illegal immigration from Mexico—and even, to some degree, drug violence—is for Mexico to grow its way out of them.
The end of the trucking dispute will help. Transporting goods across the Mexican border is a complicated business, involving customs brokers, warehouses, and lengthy inspections for drugs and illegal immigrants. Under the current system, Mexican truckers haul their merchandise to the border, where a transfer truck takes it across. A U.S. truck picks it up on the American side. In time, a Mexican driver will be able to haul goods directly from any Mexican city straight through to Phoenix or even all the way to Boston. Such efficiencies will yield savings to U.S. businesses and consumers.
To qualify for service on U.S. roads, Mexican drivers will have to learn rudimentary English and the laws of U.S. highways, which may drive up their wages. Critics of the deal point out that while Mexican truckers will benefit, U.S. truckers are loath to travel into Mexico. The country lacks the smooth roads, fueling stations, and accommodations available in the U.S.—and has the added disincentive of violent drug gangs. Trade agreements inevitably disrupt some segment of workers or industry. But cross-border trucking will evolve over many years, providing time for the small number of U.S. truckers hurt by the deal to adapt.
Nafta has not been painless. But it’s laid the foundation for improved living standards among its members. Pending trade deals with Colombia, Panama, and South Korea will do the same and deserve congressional ratification, now that the trucks are hitting the road.