North American Integration and Factor Price Equalization: Is There Evidence of Wage Convergence between Mexico and the United States?
Ana L. Revengaand Claudio E. Montenegro
DURING RECENT debates over the North American Free Trade Agreement (NAFTA), many opponents of the agreement contended that low-skilled U.S. workers would suffer large losses as a result of increased Mexican exports to the United States. Supporters of NAFTA argued that this was unlikely to be the case because the advantages offered by low Mexican wages would be more than offset by the much higher productivity of U.S. workers. Moreover, supporters claimed that because Mexican wages would rise as a result of the increase in demand for Mexican products, any advantage created by having low-cost labor would diminish over time. On the Mexican side, the arguments have followed similar lines, with proponents arguing that NAFTA will lead to an improvement in wages and living standards for the Mexican population and opponents claiming that it will hurt, above all, low-skilled workers and poor people.
We are grateful to Wayne Gray for kindly supplying us with the NBER Productivity Database, to Jim Tybout and William Cline for their thoughtful discussions of the chapter, and to Susan Collins, Dani Rodrik, Richard Freeman, Ed Leamer, and other conference participants for many helpful comments. All remaining errors are our own.