Economic Concepts and the Texas-Mexico Border and Interior

Earnings Differential

Alberto DávilaUniversity of Texas-Pan AmericanTCEE Conference June 18, 2015

The State of Texas has a population of over 25 million. Of these,

a.1 in 10 Texans live along the Texas-Mexico border.

b.1 in 100 Texans live along the Texas-Mexico border.

c. 1 in 1,000 Texans live along the Texas- Mexico border.

d. 1 in 10,000 Texans live along the Texas- Mexico border.

The State of Texas has a population of over 25 million. Of these,

a.1 in 10 Texans live along the Texas-Mexico border. (Correct Answer: 2.5 million).

b.1 in 100 Texans live along the Texas-Mexico border.

c. 1 in 1,000 Texans live along the Texas- Mexico border.

d. 1 in 10,000 Texans live along the Texas- Mexico border.

The U.S. community along the Texas-Mexico border with the largest labor force is:

a. Dallas.

b. El Paso.

c. McAllen, Edinburg, Mission.

d. Brownsville, Harlingen, San Benito.

The most populated U.S. community along the Texas-Mexico border is:

a. Dallas.

b. El Paso (Correct Answer: 347, 884) c. McAllen, Edinburg, Mission. (But close:

334,457).

d. Brownsville, Harlingen, San Benito.

Please match the Texas border cities with their Mexican neighboring cities.

Texas: Mexico:

Brownsville Piedras Negras

McAllen Ciudad Juarez

Del Rio Reynosa

Eagle Pass Matamoros

El Paso Ciudad Acuña

Please match the Texas border cities with their Mexican neighboring cities.

Texas: Mexico:

Brownsville Matamoros

McAllen Reynosa

Del Rio Ciudad Acuña

Eagle Pass Piedras Negras

El Paso Ciudad Juarez

The Texas-Mexico border area is characterized as being “poor”. Much of this characterization comes from the relatively low earnings of workers and the relatively high unemployment rates of that area.

And the earnings are lower: consider the mean earnings in Texas are $45,330, but in • El Paso they are $36,410• McAllen, Edinburg, Mission they are $33,260• Laredo they are $34,850.And the unemployment rates are also higher: consider that the unemployment rate in Texas is between 4 to 5 percent, but in• El Paso it is 6.5 percent• Hidalgo County it is 8.7 percent• Cameron County it is 8.3 percent.

What does economics tell us about these labor market differences between the Texas-Mexico Border and the

Texas Interior?

Policy implication:Is our market system to blame for these results or is it

something else?

I will try to make the case that it is something else by using basis economic concepts.

The concept of human capital—education is a form of human capital: education enhances earnings (as do other forms of human capital such as job experience and health).

Using this concept, are the earnings differentials between workers along the border related to human capital differences? Consider that the share of HS graduates (81.25 percent) and college graduates (26.7 percent) in Texas. • In Hidalgo county these shares are 61.8 & 15.9% • In Cameron county, 63.7 and 15.4% • In El Paso county, 74.0 and 20.7%• In Webb county, 64.2 and 17.2 %.The earnings, then, (and unemployment rate) differences partly reflect regional human capital differences.

The concept of real vs. nominal earnings—nominal earnings are the “face value” of what is earned and real earnings are nominal earnings adjusted for cost of living.

Using this concept, are the real earnings of workers along the Texas-Mexico border lower than those in the interior? Consider that McAllen has one of the lowest costs of living in the U.S.

Indeed, $35,000 “buys” a McAllen worker what • $39,286 buys a worker in Austin• $38,329 buys a worker in San Antonio• $41,117 buys a worker in Houston• $39,744 buys a worker in Dallas.(see http://money.cnn.com/calculator/pf/cost-of-living/)

The concept of supply and demand in the labor market—wages are determined by supply and demand forces.

Using these concepts, are there reasons to suspect differences in the relative demand and supply of labor between the Texas-Mexico border and the interior?

Some have attributed the depressed earnings and the high unemployment rates along the border to undocumented labor.

What impact do Mexican immigrants have on the U.S. side of the Texas-Mexico border?

•A simple supply and demand analysis can help illustrate the wage impact of an increase in labor supply resulting from an increase in Mexican migration to a region (such as the border). Consider Figure 1.

W

Labor

Demand

Supply_1 Supply_0

W1

W0

L1L0

The concepts of complements and substitutes--- complements produce something together while substitutes produce something on their own, what the one produces is instead of the other.

Using these concepts, is immigrant labor promoting the Texas-border and interior earnings disparity or reducing it?

•Mexican immigrant workers are substitutes for American workers in the graphical analysis. If American and Mexican immigrant workers are complements, the wages of American workers would rise.

•While some workers would be adversely impacted by the increase in Mexican immigrant labor to the U.S. (American workers competing for the same jobs as Mexican immigrant workers), others would benefit.

•Adam Smith’s Wealth of Nations, 1776).

Other Concepts Regional wage convergence: Does the market system eliminate regional wage differentials in the long run?• Labor Mobility• Capital Mobility• Consumer “mobility”

Hedonic Wages: Workers maximize satisfaction and not income.• Value friends, family, culture• Value proximity to Mexico

Concluding Points

So is the Texas-Mexico border region relatively poor?

Yes, but not because the market system does not work.

But more so because of the relatively low levels of human capital along the Texas-Mexico border. Thank you Any questions?