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THE ECONOMY
Growth Without Prosperity

From Zacatecas, 350 miles south of Nuevo Laredo, the northern Mexico Border region is often viewed as an area of high income and expanding employment opportunities--with even more economic prosperity and promise lying just on the other side of the Rio Grande.

In Dallas, 350 miles north of Laredo, the Texas Border region is frequently seen as poor and fraught with such social problems as drug trafficking, pollution, and climbing high school dropout and teen pregnancy rates--with potentially worse social and economic problems just over the border.

Both views are right and both are wrong--because residents in Dallas and Zacatecas measure the economic vitality and potential of the Border region with different yardsticks and expectations of the Mexican and U.S. economies. The economic future of each side is inevitably seen as a success or a failure within the context of larger national economies. And while the two national economies are geographically contiguous and reinforce each other along the 1,254-mile border, the very same dividing line forces the economies apart into different economic milieus, with all their underlying forces and origins, creating distinct economic challenges for each side.

By all accounts, the main economic challenge faced by workers along the U.S. side of the border is educational improvement--a question of training for more high-skill, high-wage jobs. This must happen if the region is to begin climbing out of its position of relative poverty.

On the Mexican side, a more pressing need is to continue the phenomenal job growth in the northern border states since 1970 to extend the benefits of growth to more workers--a question of providing more jobs.1 If job growth slows without a similar slowing in population, social pressures caused by migration to northern Mexico from poorer parts of the nation could build to critical levels.

Based on trends and expected changes, the Comptroller developed a baseline forecast of the Border economy to 2020. This forecast indicates that while real earnings per capita in the Border region will more than double by 2020, the region's standing relative to the rest of the state will deteriorate during this same period (see Figure 2.1).

Changing this future will require developing more skilled jobs, a path that will not prove easy or quick. To develop a high-wage economy, the region needs time. And in order to afford the time it needs to develop a highly skilled workforce, the existing job base of higher-wage jobs in the region must be stabilized. In particular, the Border needs to retain military and civilian government jobs. In addition, instead of writing off existing industries as unsalvageable because of international competition, the region should identify and finance niche markets within the industries before major producers close up shop and leave the region entirely.

Second, to improve employment prospects for a large pool of undereducated and young workers in the region, regional leaders and the state should adopt an economic development strategy that emphasizes industries not traditionally thought of as high-skill or high-wage--such as tourism and agricultural processing. It is difficult to lift the overall level of income in any locale when an oversupply of workers in one or two subgroups of the labor market drags down average worker earnings.

Potentially, the Border region could look to national high-growth industries to generate higher skill jobs in the health care, business services, and higher value-added manufacturing sectors. In each case, Border planners should build on niches in industries related to the region's proximity to Mexican consumers and producers.

Mexican border cities need continued expansion in the raw number of jobs, including new factories and associated transportation and water needs, along with other infrastructure investments.

Northern Mexico's maquiladoras have become enduring economic magnets. They represent to the potential immigrant in central and southern Mexico, and even those in Central and South America, what the American Midwest was to poor farm workers in the southern U.S. in the 1940s and 1950s--a promise of steady earnings and the amenities of the good life.

This analogy could falter, however, if the economic magnet of northern Mexico loses strength. Then the attraction of moving farther north to a stronger economy may prove at least as great as any pull to return "home" to an uncertain economic environment. An influx of laborers crossing the border could wash out wage gains on the Texas side.

The economic path for the Texas-Mexico Border region seems clear. Lasting gains in living conditions on the U.S. side will come from improvements in the quality of workers and jobs, driven by better education and training. But progress will be stabilized only if job opportunities in northern Mexico continue to multiply. Without these dual forces--improvements in U.S. worker skills and a continued boom in northern Mexico--Texas Border workers could face a continued cycle of poverty and eventually a no-win "race to the bottom" against workers in northern Mexico.


Integrating the Border Economies

Exchanges constantly occur along international borders. One set of exchanges is the trading of goods and services. Another is the routine conversion of currencies. And a third set of exchanges involves the factors of production, the migration of labor, and the investment of capital.

Along the border, these three types of exchanges have occurred to varying degrees for at least 100 years. Since 1900, trade between Mexico and the U.S. has passed through four different epochs, including the most remarkable period yet, capped off by the North American Free Trade Agreement (NAFTA) linking Mexico, Canada, and the U.S. on the eve of the new century.

During the early part of the century, before the passage of the Smoot-Hawley tariffs and onset of the Great Depression in 1929, trade between the U.S. and Mexico grew slowly. The real value of Mexican exports to the U.S. rose on average 2.2 percent annually, and the value of U.S. exports to Mexico rose about 2 percent a year. From 1929 until the start of World War II, trade between the two countries stagnated.2

Following World War II, however, world trade began to grow more rapidly, and trade between the U.S. and Mexico followed suit. Mexican exports to the U.S. grew at an average annual rate of 4.2 percent, with U.S. exports to Mexico growing 3.9 percent annually between 1945 and 1972.

Throughout this period--indeed, until 1978--the value of U.S. exports to Mexico exceeded the value of Mexican exports to the U.S., resulting in a positive U.S. trade balance. Much acceleration in world trade during this period was attributed to trade-facilitating treaties reached under the General Agreement on Tariffs and Trade (GATT). But Mexico did not join GATT until 1986, and only in 1988 began liberalizing trade restrictions. This growth in trade between the U.S. and Mexico reflects an emerging recognition by Mexican policy makers that their economy must participate more in the world economy to attain higher standards of living.

From 1972 to 1997, U.S.-Mexico trade blossomed. The real value of Mexican exports to the U.S. rose at 11 percent a year, while the value of U.S. exports to Mexico grew 8.9 percent annually.

Trade between Mexico and the U.S. started to boom long before NAFTA, which took effect in January 1994. To be sure, total trade between the two countries grew at a 13.1 percent annual rate from 1994 to 1997--after NAFTA--compared to a 10.9 percent growth rate from 1990 to 1994. But the roots of surging trade between the neighboring countries can be traced to the increasing integration of the U.S. and Mexican economies in the late 1980s--before NAFTA.


Trade and People

Like trade in goods, the flow of people across the U.S.-Mexico border has a long, uneven history. In the early part of this century, a rise in U.S. commercial agriculture spurred a demand for seasonal farm laborers. Between 1910 and 1929, Mexican farm laborers began an annual migration that started in the farms of South Texas and headed north to Northwest Texas, to the Panhandle cotton fields and beyond. Demands for workers intensified as irrigated "truck crops" became more prevalent. For example, with mechanized processes, growing and harvesting an acre of wheat during the 1930s required 13 man-hours of labor. In contrast, producing an acre of lettuce required 125 man-hours.

Mexican agricultural labor poured into Texas before 1929 to harvest produce. But with the stock market crash and ensuing Great Depression, farm prices and production stalled. As a result, between 400,000 and 500,000 Mexicans, and in many cases their U.S.-born children, were returned to Mexico.

The labor migration from Mexico to Texas and other southwestern states had been vital to the Mexican economy. Between 1917 and 1929, Mexican immigrants in the U.S. sent an estimated average of $10 million a year back to families in Mexico--roughly equal to 7 percent of the value of exports from Mexico to the U.S. at the time.3

With the onset of World War II, demand for migrant labor strengthened, and the flow of Mexican labor across the border resumed. Mexico declared war on the Axis nations on May 22, 1942. The following August, the U.S. and Mexican governments set forth conditions under which Mexican labor might be recruited for wartime employment, beginning the bracero program. The number of Mexican farm workers in the program soared from 4,203 in 1942 to 120,000 in 1945, with most workers returning to Mexico at the end of each season. While the initial "war-time" farm-labor importation program ended on December 3, 1947, the bracero program continued until 1964.

In 1965, the Mexican government established a Border Industrialization Program to provide jobs for Mexican workers displaced by the end of the bracero program and to stimulate the depressed economies of its northern states. This program, encouraging U.S. companies to build assembly operations, or maquilas, in northern Mexico to finish products for re-exportation, essentially tried to substitute a southern flow of investment capital from the U.S. into Mexico for the northern flow of labor from Mexico to the U.S.

After modest successes in the late 1960s, the number of maquila plants and workers took off in the 1970s. Total maquila employment rose from 67,214 in 1975 to 896,334 by the end of 1997--an annual growth rate of 11.9 percent. In Ciudad Juarez, across from El Paso, maquila employment rose from 19,775 in 1975 to 190,874 by 1997. Similar increases were posted in the Mexican Border cities of Nuevo Laredo, with 1,285 employed in 1975 increasing to 20,098 in 1997, Reynosa, increasing from 1,255 to 45,774 workers in the same period, and Matamoros, multiplying more than five-fold from 9,778 to 54,547.4

NAFTA crowned the continued internationalization of the Mexican economy and the Border region, in part by institutionalizing many of Mexico's unilateral economic changes of the 1980s, such as the elimination of many import licensing agreements in 1986 or the 1987 reduction in trade-weighted tariffs, by placing them in the context of an international agreement.5

Since taking effect, NAFTA has been judged both an economic success and a failure. A U.S. presidential study of the three-year effects of NAFTA states that U.S. exports to Canada and Mexico supported an estimated 2.3 million U.S. jobs in 1996, an increase of 311,000 jobs since 1993. Of the increase, 189,000 jobs were attributed to growth in exports to Canada and 122,000 new jobs were attributed to growth in trade with Mexico. U.S. exports to Mexico grew by 36.5 percent from 1993 to 1996, despite a 3.3 percent contraction in Mexican gross domestic product caused by the peso devaluation of late 1994.6

But another study is less cheering. During the same three-year period, the William C. Velasquez Institute estimated, NAFTA resulted in a net loss of 92,000 jobs to the U.S. economy. The institute reported that because Latino, African American, and female employees made up a disproportionately large share of workers in industries subject to competition from Mexican imports, these groups bore the brunt of NAFTA-related job losses. El Paso alone felt the pinch of 7,969 lost jobs from increased international competition attributable to NAFTA--more than half of all statewide job losses due to NAFTA.7 Moreover, 60 percent of increased trade from Mexico to the U.S. reflected U.S. corporations moving goods from one side of the border to the other, implying that much of post-NAFTA growth did not ripple through the Mexican economy.8

Whatever one's assessment of NAFTA--economic boon, boondoggle, or something in between--increased trade and international competition appear likely to color developments on both sides of the border for the foreseeable future. Trade was a significant source of economic growth and change before NAFTA, and would have remained so had NAFTA never happened. Unanswered in debating whether NAFTA was good or bad in general was how the Border economy might evolve. To help determine the likely economic future for the next generation of Border residents under trade trends, the Comptroller developed an economic forecast through 2020.


Comptroller's Baseline Forecast: Economic Growth

According to the Comptroller's baseline economic and demographic forecast, the Border region is in for two decades of good news and bad. On the positive side, Border economic growth will continue to outstrip that of the state. From 1995 through 2020, the Border will add jobs at an average 2.4 percent a year, almost one-half percentage point better than the average projected statewide increase of 2 percent annually. Driven mainly by a relatively high birth rate, Border population growth of 1.8 percent a year will also be well above the state's 1.5 percent annual rate--meaning more workers seeking more jobs in the expanding economy. Overall, the population of the 43-county Border region is expected to increase by nearly 60 percent, or 2.3 million, reaching 6.3 million by the end of the forecast period (see Table 2.1).

On the down side, the general prosperity of the region will continue to be hampered by low wages, a steady influx of new workers looking for jobs, and high unemployment. Throughout the forecast period, average Border wages are expected to be more than 20 percent less than the state average, and Border personal income growth, at 3.6 percent annually from 1995 through 2020, will be only slightly greater than the projected state average rate of 3.4 percent a year. While the Border region's unemployment rate is projected to decline from 9.5 percent in 1995 to 8.2 percent in 2020, the Border's jobless rate will still average almost 3.5 percentage points above the statewide rate.

One point bears repeating. The Comptroller's projections assume a continuation of trends and established economic relationships. They should be viewed as neither best--nor worst--case scenarios, but as the most likely growth path given the economic history of the region. As such, the projections do not incorporate possible changes in the factors influencing growth, such as improving worker skills, major changes in national immigration policies, or significant shifts in international investment.


Comptroller's Forecast: Booming Industries

Border job growth through 2020 will likely be led by rapid gains in construction, transportation, and business and health services. Transportation services, benefiting from expanding trade with Mexico, are likely to grow at an annual 4.1 percent rate through 2020. Not far behind, business services are expected to expand at a 3.8 percent annual rate due largely to the growth of computer programming, data processing, and temporary help services. Following national and state trends, health services employment will increase at an average annual rate of 3.7 percent as the region's population ages and more residents require health services. Construction will probably add jobs at a 3.3 percent annual rate in response to growing housing needs among residents as well as rising industrial, retail, and highway construction geared to surging trade.

Almost two-thirds of new jobs created in the region from 1995 through 2020 are expected to be in the relatively low-wage sectors of wholesale and retail trade and services. In this respect, job growth trends along the border and around the rest of the state will probably resemble each other. Nearly 25 percent of new jobs in the Border region during this period will be created in the lowest-wage sector of wholesale/retail trade, while the same sector is expected to account for only 20 percent of new jobs generated statewide through 2020 (see Table 2.2).

Three major factors--the growth of the overall Border economy, increasing sales to Mexican consumers, and growing tourism, especially in the San Antonio and the Lower Rio Grande Valley areas--are likely to play important roles in the growth of Border trade employment through 2020. Overall, inflation-adjusted Border retail sales are expected to more than double from $34 billion in 1995 to $78 billion in 2020.

Mining is expected to lose employment at a 0.2 percent annual rate. Mining jobs, driven by oil and gas production, are likely to fall throughout the state because of declining reserves. Manufacturing, with a projected annual employment growth rate of 0.7 percent, and three other Border sectors will grow relatively slowly during the same period. Restrained by national and international consolidations, employment in finance, insurance, and real estate will increase at an annual rate of only 1.2 percent. Government jobs are projected to grow at an annual rate of 1.9 percent because of fiscal restraint at the federal, state, and local levels, as well as planned military base closures and consolidations. Agriculture and agricultural services employment are expected to add jobs at an annual 2 percent rate, with most gains originating from urban nursery and landscaping services.


Comptroller's Forecast: Manufacturing Vital

Employment figures alone fail to capture the overarching importance of manufacturing to the Border economy. First, because of its capital-intensive nature, manufacturing generates higher productivity gains than most other sectors of the economy. According to the Comptroller's gross state product projections, state manufacturing output per worker, in inflation-adjusted dollars, will likely increase an annual average of more than 2.5 percent from 1995 through 2020. Combining this statewide gain with the projected 0.7 percent annual increase in Border manufacturing employment suggests that total Border manufacturing output will increase an annual average of 3.5 percent through 2020.

Second, because it sells most of its products to outside markets, manufacturing also tends to set the general level of wages in a region. Historically, relatively low wages along the border have attracted labor-intensive manufacturers such as apparel and food processing, which comprised almost 45 percent of Border manufacturing employment in 1995. This pattern is expected to shift dramatically by 2020. Largely in response to the mid-1990's peso devaluation and changes in the international market demand for blue jeans, several large Border apparel producers (including Haggar, Levi Strauss, and Fruit of the Loom) began shifting factories to Mexico and other low-cost locations outside the U.S. With the continuing loss of apparel jobs, Border apparel employment is expected to fall by nearly 11,000 from 1995 through 2020. Similarly, Border food processing employment is projected to tumble by more than 5,000 jobs during the same period as free trade encourages the importation of food products from Mexico and other Latin American counties (see Table 2.3).

In contrast to a decline in traditional non-durable goods industries--firms that manufacture goods such as foodstuffs that last less than one year--rapid growth in trade with Mexico is expected to continue attracting producers of machinery, electronics, and transportation equipment to the Border, including durable goods--manufactured goods that last longer than one year, such as televisions and automobiles. Together, the machinery, electronics, and transportation industries will likely add more than 19,000 jobs to the Border economy through 2020, more than outweighing anticipated job losses in food processing and apparel.

A major share of the new jobs will involve producing parts for the fast-growing maquiladoras. Many of the maquilas will likely ship finished automotive components to U.S. car and truck manufacturers. In this industry and other maquilas, there could be a windfall from NAFTA, possibly leading to more job growth. As a result of the NAFTA-driven requirement to equalize the treatment of non-NAFTA imports, Mexico will be required to raise tariffs on some imports which now come from outside the U.S. or Canada and enter duty-free into the maquiladora program. The raising of these tariffs will make U.S. and Canadian suppliers more competitive with the existing non-NAFTA suppliers, possibly leading to a shift in trade.

A surge in Border construction is expected to spur Border producers of lumber, furniture, and stone, as well as primary and fabricated metals. Through 2020, Border employment in these construction-related industries will increase by nearly 14,000. Overall, durable goods manufacturing employment will increase from 52,900 in 1995 to 87,400 in 2020, overtaking employment in non-durables, which will decline from 92,300 to 84,900.


Comptroller's Forecast: Wages Will Still Lag

Increasing productivity--the amount of output produced per hour worked by employees--is expected to drive up Border manufacturing wages, after adjusting for inflation, at an annual rate of slightly more than 1 percent through 2020. And manufacturing wages, which traditionally lead wage increases in other sectors, will push the Border's overall annual wages at approximately the same pace, from $21,650 in 1995 to an inflation-adjusted $27,400 in 2020--a welcome gain after remaining relatively flat during the 1990s. Unfortunately for Border residents, statewide wages will increase at approximately the same rate by 2020, meaning border wages will continue to lag behind wages elsewhere in Texas, staying at about 80 percent of the Texas average. On balance, however, the combination of rising real wages and regional employment gains will boost total wage income in the region, after adjusting for inflation, at an average annual rate of 3.2 percent through 2020.

Personal income is composed of non-wage income--dividends, interest and rents, transfer payments from government assistance programs, and other sources--and wage income. Non-wage income accounted for slightly less than 15 percent of Border personal income in 1995. Understandably, low-income Border residents will not amass significant savings by 2010, so this source of income is expected to grow slowly, at only 2.4 percent a year after adjusting for inflation.

In contrast, because of relatively low household incomes and high unemployment in the Border region, transfer payments--mainly federal Social Security, Medicare and Medicaid payments, and other income measured programs--are likely to continue as a major regional source of personal income. In 1995, such transfer payments accounted for a little less than 25 percent of Border personal income, but this share is expected to rise to nearly 30 percent by 2020. Mainly because of the aging population and associated increases in Social Security payments, Border transfer payments are expected to increase at a brisk 4.7 percent annual rate, after adjusting for inflation, through 2020.

Because of mounting transfer payments, inflation-adjusted Border non-wage income is expected to increase at a 4 percent annual rate, surpassing wage income as the most important source of personal income by 2020.

In sum, the combination of 3.2 percent annual growth in wage income and 4 percent growth in non-wage income indicates that total Border personal income will increase at an annual rate of 3.6 percent after adjusting for inflation, through 2020 (see Forecast).


Comptroller's Forecast: Border Population Growth To Outpace Texas'

Population growth is made up of two components: natural increases or the excess of births over deaths, and regional net migration, the difference between the number of individuals who enter and leave a region. The Border region, with its relatively young population, has historically grown much faster than the rest of Texas and the nation. In 1996, the Border's birth rate of 21 live births per 1,000 population exceeded the state rate of 17.5 live births per 1,000 population, while its death rate of 652 deaths per 100,000 population was less than the state rate of 736 deaths per 100,000 population. The Border's overall natural increase rate of 1.4 percent in 1995 exceeded the state rate by more than 40 percent. Such a pace makes it hard for any region to produce enough jobs and other opportunities to ensure prosperity for all. At the very least, the Border's booming population plays a large role in explaining the persistence of high unemployment despite healthy job gains.

By 2010, as its population ages, the region's natural increase rate is expected to fall toward the state rate. But even in 2020, population growth in the region will outpace the state rate by more than 30 percent, not even counting net migration. Border births will probably exceed deaths by almost 1.3 million through 2020, accounting for nearly 60 percent of the Border's population growth, from 4 million in 1995 to 6.3 million in 2020. Put another way, just the "homegrown" part of the population increase expected along the border between 1995 and 2020 will nearly equal the combined 1997 populations of Montana and Wyoming.9

Unlike natural population gains, determined almost wholly by the number of women of child-bearing age and trends in fertility rates, net migration into any region has historically been driven by the relative availability of jobs in that region. Net migration into the Border region peaked at more than 50,000 new residents a year at the height of the Texas economic boom of the early 1980s, but slumped as Texas and the Border fell into recession in the second half of the decade (see Figure 2.2). Border net migration, however, subsequently rebounded nearly to the highs of the early 1980s as Texas and the Border region experienced a strong economic turnaround in the mid-1990s.

Through 2020, net migration in the Border region, including illegal migration, is projected to remain fairly strong as the region outperforms the state and national economies. Nearly 1 million more people will move into the Border than move out through 2020, accounting for slightly more than 40 percent of the region's population growth of 2.3 million.

Combined, net natural increase and in-migration will increase the population of the Border region by nearly 2.3 million people by 2020. This increase alone is bigger than the 1997 population of 12 states.10


Exploring The Income Gap

Per-capita personal income in the 43-county Texas Border region was only two-thirds that of the U.S. average in 1995--$15,570 versus $23,196 (see Table 2.4). The fact that the income in these counties was only about one-quarter less than the state average of $21,118 seems small consolation. Breaking out the 43 counties--imagining them as a separate state--changes the picture only slightly, with the Border trailing the non-Border region by more than 30 percent.

To understand how or whether the Border region might change this economic outlook and gain a bigger, more equitable share of the state's economic pie, the Comptroller examined the roots and extent of the abiding income gap between Border and non-Border residents. Examining the income of various subgroups of the state's population from the 1990 U.S. Census yielded meaningful indications of the extent of the income gap, and its major causes.11 While these data might have been viewed as a little stale by the time of this study, the long-standing nature of the income gap and its causes meant that the 1990 figures were, unfortunately, still quite relevant.

Per-capita income in the Border region was $14,945 in 1990, leaving a raw 25.9 percent gap between residents of the region compared to the Texas average of $20,162 (see Table 2.5).12

It became the Comptroller's challenge, however, to sift out demographic differences between the Border region and Texas as a whole, and to determine the "apples to apples" income gap between otherwise similar residents living within the region or without. Through a weighting approach, the income gap was analyzed by taking into account the Border region's greater share of children, adult non-workers, and unemployed adults. This sifting showed that if the state had the same proportion of population under age 16 as the Border, the same labor force participation rate, and the same jobless rate, its per-capita income would have been $19,332, or 4.1 percent less than the "unadjusted" state average, shrinking the income gap between the Border and Texas to 22.7 percent.13

Influences on the income gap between the Border and the state change subtly but importantly after such adjustments. Incomes vary among the employed and vary among the unemployed. Here we present the reasons wages and salaries are different in this region than the rest of the state.


The Big Picture: Wage and Skill Differences

Why do wages and salary levels vary among employed individuals, wherever they live and work? A primary influence appears to be distinctive worker skills. Economic theory assumes that workers will be paid according to the value of their contributions. In modern society, higher-skill jobs generally pay more than lower-skill jobs. Probably the key determinant in landing and holding a high-skill job is a worker's education level. Other things being equal, workers with more schooling tend to earn more than workers with less schooling.

So far so good, but education is not the only indicator of skills. Many jobs require a substantial investment of time to become proficient, and additional job experience above the minimum required to land a job tends to make workers more productive. As a result, more experienced workers usually earn more than less experienced workers.

Unfortunately, few standard measures of job experience exist. The effects of experience are instead inferred from examining differences in employees' ages.

A third influence on differences in earnings involves workers' ability to translate the potential of higher education or more experience into the reality of a good job. This involves successfully navigating the "public" job market--positions that are widely known and open to all comers--and the hidden job market, sometimes reflecting openings filled through informal and powerful "networking." One's earnings can be greatly affected by the ability or inability to tap into this network. Importantly, the length of time an immigrant has been in a country greatly affect the worker's ability to translate good skills or more education into a well-paid job.14 It really is, often, who you know (see The Benefits of Empowerment Zones).

  Sidebar:
The Benefits of Empowerment Zones
Because the Border region's population is low in educational attainment, relatively young, and has a high proportion of recent migrants, the Border's employed population would be expected to have lower incomes than the statewide average. Moreover, assuming the three influences interact, trying to separate the effects of one factor from another might produce misleading conclusions, depending on the order in which each factor's influence was examined. Instead, the Comptroller calculated income averages for 80 separate subgroups in the Texas population and then for the same 80 groups in the Border region. The groups were defined to include five different educational levels, four age groups, and four levels of the length of time residents had lived and worked in the U.S.15

Based on the state average income for each of the 80 subgroups and the proportion of each subgroup in the Border's population, a revised state average income was calculated to reflect the state's average income if the state's employed workforce had the same education, age, and immigration profile as the Border. Controlling for these effects reduced the state average income to $17,734. At this level, the income gap between the Border and Texas fell to 15.7 percent from the original, unsifted 25.9 percent.

Further breakdown is impossible with the current available data, but other distinctions between the Border region and Texas as a whole may underlie the personal income gap.16

For example, evidence suggests that the supply of low-skilled immigrant labor may be depressing income levels in some segments of the Border's workforce. Consider the income gap between the Border and Texas native-born employed residents by age and educational attainment. Considering just native-born workers, and after controlling for differences in age and education, the Border's lowest relative income earners also have the lowest educational attainment.17

This pattern is consistent with the "supply side" effects of immigration. Immigration ensures a ready supply of less skilled labor in the Border region, which can depress average earnings for all lower-skilled persons in the region--immigrant or native-born. But just because an abundance of workers with one set of skills exists in the region, it doesn't necessarily follow that the wage-depressing effects of this oversupply will spread to other parts of the labor market that possess other skill sets. This is driven home by noting that the relative wage of native-born workers in all age groups along the border with the least education (less than some senior high school experience) is below the adjusted statewide average wage, but the relative income of native-born workers with at least some college training along the border is almost universally above the adjusted statewide average in all age groups (see Table 2.6).


Narrowing the Gap

The income gap between the regional and state average can be "reduced" by sifting out key population, labor force, and employment characteristics. Identifying causes of the gap helps separate it into areas that can be addressed by public policy or private actions and those that are the result of demographic characteristics. This analysis does not explain a social and economic problem through statistical sleight of hand. Instead, it shifts the discussion away from per-capita income, the yardstick used to measure a problem, to the individual (and entwined) causes of the problem itself.

In this case, a variety of demographic, educational, labor force, and immigration-related factors have combined to make the income gap appear larger than it would be otherwise. By the same token, if raising the Border region's relative level of income is a desired goal--and it is--then public or market policies to affect these factors are key targets for intervention.

To raise the Border's level of income above projected levels requires addressing two areas of public policy. First is education.


Education

While some may argue with the strategy of increasing workforce skills to attract or generate higher-skilled jobs in an area, the fact remains that unskilled applicants find it hard to land a job.

Increasing the skill and knowledge base of the population of the Border region will have an income effect beyond just raising the average wage. The unemployment rate of those with lower educational attainment is higher than for those with higher educational levels. In fact, if the unemployment rate gap between the Border and the state is controlled--using the same sort of analysis to examine the effects of age, education, and immigration on the average wage--the unemployment rate gap between the state and the Border is 40 percent smaller.18 In other words, increasing the educational levels of the workforce would lower the unemployment rate.

The income effects of education don't end here. As is repeatedly shown across the nation, areas with chronically high unemployment rates tend to have large pools of "discouraged workers." These are individuals who view trying to land a job as a futile exercise, are no longer even looking for work, and are therefore not counted as being in the labor force. To the extent that raising workforce education and skills will lower the unemployment rate and increase the apparent monetary rewards for work, it should also reduce the number of discouraged workers and raise the labor force participation rate in the Border.


Immigration

Immigration is the second area of public policy that can have a positive effect on raising the Border's relative income. The evidence from the 1990 census and other studies indicates that a larger pool of low-skilled immigrant labor in the Border depresses average wages for all individuals with low skill levels--native residents as well as immigrants. Slowing the influx of low-skilled immigrant labor into the Border region could buoy average wages for this group. Or if the level of immigration remains high, some countervailing intervention strategy geared toward absorbing this pool of largely unskilled labor into the economy will be necessary.


The Mexican Border Economy

As a result of the success of the maquiladora plants, northern Mexico has become a prime destination for migrants within Mexico. Although availability of such statistics is limited, from 1987 to 1988, the population of Ciudad Juarez grew by 1.8 percent due to natural increase and by 7.5 percent due to immigration. During this same period, Reynosa and Nuevo Laredo grew by 1.3 percent and 1.2 percent, respectively, due to natural increase. But both grew by 3.7 percent due to immigration. In contrast, of 14 Texas counties along the border, nine posted negative in-migration from 1987 to 1988, one had no net migration, and four had positive net in-migration.19

Growth in the Mexican population along the border has been astounding throughout most of this century. In the U.S., when "high-growth" regions are discussed, the South in general and Texas in particular are often mentioned, but these areas have not grown at nearly the rate of northern Mexico. In four out of five pairs of twin cities along the Texas-Mexico border, the U.S. city was larger in 1920 (see Table 2.7). By 1970, the Mexican city was the larger twin in each case. And by 1990, each Mexican twin was considerably larger than its U.S. counterpart.

From 1920 to 1990, the slowest average annual growth rate in any of the five Mexican border cities equaled the highest growth rate of any of Texas' large cities. During this period, Texas' population grew at an annual rate of 1.8 percent, one-third faster than the nation. As impressive as this may have been, it was exceeded in each of the four Mexican states bordering Texas.

These high growth figures reinforce a conclusion that among the most pressing economic problems facing the Mexican Border region will be maintaining a high rate of job growth to employ this rapidly growing population.


Border Development Strategies

The task facing the Texas Border region is twofold. First, it must train its current and future workforce to higher skill levels while simultaneously generating or attracting higher-skill jobs. Second, because immigration of low-skilled labor is likely to continue and the supply of this labor in the region is already high, the region must also focus on development strategies to generate low-skill jobs or face the prospect of continued high unemployment rates, low labor force participation rates, and depressed wages in low-skill occupations.

These tasks must also be accomplished in an environment of increasing international competition and the continuing integration of the Mexican and American economies. Changing global relationships will constrain the Border's options. But they can also be seen as opportunities. No longer should the Texas Border sell itself as a low-wage haven for unskilled or low-skilled jobs. In the years ahead the Border must seek out market niches that fit well into an international economic milieu, and may indeed be enhanced by it. This characteristic must be true for both high-skill/high-wage jobs as well as lower-skill/lower-wage jobs.

Finally, Texas Border leaders must understand the importance of the area's interdependence with the economy on the other side of the Rio Grande, and then leverage and foster this relationship. The Texas Border economy must help the Mexican Border economy continue to generate jobs, even if they appear south of the Rio Grande. Both sides of the border should view themselves as economies in different stages of development, but both in need of progress. The ultimate goal of both is to improve the quality of life of their citizens. During the next generation, the challenge for the Texas Border economy is to improve the income of its residents, while the challenge facing the Mexican Border economy is to extend the benefits of better jobs to a larger population.


Better Jobs Require Better Skills

The Comptroller's baseline forecast for the Border economy brought to light several areas in which the Border should develop a high-skill job base.

The health care industry faces a growing demand across Texas and the nation, for example. Moreover, U.S. health care is viewed as more advanced than Mexico's in a variety of ways, particularly when it comes to new procedures and protocols using high-technology equipment. The Texas Border region could pursue the growth of this industry to serve not only the Texas Border market, but the Mexican Border market. Both the Texas Department of Health (TDH) and the Texas Department of Economic Development (TDED) could work with local health care providers to identify and serve Mexican nationals in Texas Border facilities. In addition, Texas' higher education institutions could take on the special challenge of ensuring that training facilities are available in the Border region for needed medical professionals.

The region could further capitalize on its asset of bilingualism. The growth of telemarketing companies in San Antonio since 1980 has been largely a result of a need for bilingual operators. Such jobs pay moderate wages by state standards, but the same jobs would raise the average wage in the Border region.

Trade-facilitating jobs in the transportation and distribution industries could also be a source of job growth in the Border region as binational trade increases. In some cases, jobs requiring a high level of trading skill, such as freight forwarders and logistics managers, are by any standards high-wage. In other cases, moderate-wage jobs in trade facilitation should be judged by the yardstick of a local average rather than a statewide average. Because these jobs have a special connection to the Border economy, the Statewide Economic Development Strategic Plan should explicitly recognize that this region should have "priority" on developing these jobs.

The growth of maquiladoras in northern Mexico, largely based on the availability of low-cost labor on the Mexican side of the Rio Grande, has been truly remarkable. The Texas Border region cannot, and probably should not, compete for these jobs. Instead, the region should promote the further development of maquila operations in northern Mexico, while identifying higher-skilled, more capital-intensive companies that could provide services to the maquila industry from plants on the Texas side of the border. Candidates might include tool and die makers, computer service companies, accounting firms, and other business services.

While considering new avenues for growth, the Border region still should not write off its historically low-wage manufacturing jobs as inevitable casualties of international competition. True, trying to save some parts of certain industries such as the apparel industry, as currently configured, could prove fruitless. Niche markets, even those within industries subject to intense competition from imports, might not only be competitive, but high-skill and high-wage as well. For example, the "stone washing" process has become a strong and resilient part of the apparel industry in El Paso. Efforts could be made to build on existing corporate-community relationships with employers in these industries to identify and attract more high value-added activities. TDED could host an apparel summit encouraging Texas producers to identify higher-skill and value-added manufacturing opportunities for the Border.

Government itself could be a stable, continuing source of high-wage jobs for the region. While average, industry-by-industry wages in the Border counties are significantly below state averages, this gap narrows considerably among government sectors (see Table 2.8). No income gap existed between the average annual pay for governmental employees in the Border region and the state in 1995. Government wages are largely set at the state level, so the Border-non-Border wage gap is considerably below that seen in other industries. Federal and state agencies could be encouraged to locate new jobs or consider relocating some functions to the Border region to aid in developing a higher-wage and higher-skill economy. This would be particularly true of federal and state governmental functions that are "footloose"--activities not tied to any particular location. For example, a call center designed to field questions about state or federal government by telephone or via the Internet could be located anywhere within the state and could actually attract qualified bilingual applicants more easily if located in the Border region.

State government is already a significant employer in the Border region. In 1997, total state employment in the Border amounted to more than 42,000 jobs, or nearly one in every seven state jobs. But this percentage varies greatly from agency to agency (see Table 2.9). Agencies, whose distribution of employment across the geographic landscape might be expected to follow population patterns, generally have about 20 percent or more of their agency employment in the Border region (for example, the Texas Department of Mental Health and Mental Retardation, Department of Human Services, TDH, Department of Protective and Regulatory Services, and Texas Workforce Commission). But other large agencies that might be expected to have their employment distributed proportionately with the population have a lower percentage of workers in the Border region. These agencies include the Texas Department of Criminal Justice, the Texas Department of Transportation, and the Department of Public Safety.

Indeed, as the costs of living in the Border region are lower than other parts of Texas, public sector employees could well enjoy a higher living standard in this area without raising costs to government.

Special efforts could also ensure that the U.S. military installations (including support operations) remain in place and intact in the Border region. Because of the important role these jobs play in providing a high-wage job base for the region, the Texas Strategic Military Planning Commission should document the effects that the loss of these jobs would have on the region's per-capita income and transmit this information to each facility and to the U.S. Department of Defense.

Texas should be prepared to act decisively to preserve defense jobs in the Border region. Among other actions, Texans should:

  • improve roads and railways running from bases to seaports and aerial ports to reduce deployment time;

  • offer state incentives for affordable housing near military installations;

  • offer state incentives to businesses that locate near bases and employ substantial numbers of military spouses or other family members;

  • designate military installations as wholesale electricity customers, freeing them to negotiate lower rates for power;

  • continue to provide affordable higher education opportunities to military personnel and their families;

  • support state efforts to increase the job search and job placement services to military-civilian transition offices located on most military installations;

  • offer military discounts for state hunting, fishing, and other recreational facilities; and

  • waive move-in and security deposits required by utilities, telephone companies and landlords for troops serving on area military bases.


Starting From the Bottom

In the Border region, a relatively high proportion of residents are young, with low educational attainment, and in many cases immigrants. To climb the economic ladder, members of these groups need entry-level jobs. The tourism industry not only provides such jobs, but also boosts career development. Many tourism-related firms offer significant job-skill training opportunities to entry-level workers. As of 1990, nearly a quarter of the Border population attending colleges and universities in the region were also employed in tourism-related industries.20 Beyond providing entry-level jobs, the tourism industry can bolster skills development.

The Border region already has a significant foothold in the tourism industry. San Antonio has developed into a world-class destination, with the Alamo, the Riverwalk, Sea World, and Fiesta Texas among its attractions. The beaches of Padre Island, stretching from outside Corpus Christi to near Brownsville, serve as a year-round draw for in-state and out-of-state tourists. Winter Texans flock to the Lower Rio Grande Valley from October to April, and tourists are increasingly drawn to the Mission Trail around El Paso.

Nature tourism, the fastest growing segment of the state's $23 billion travel industry, has its home in the Border region. In 1997, wildlife watchers spent $1.6 billion in Texas. The 500-mile Great Texas Coastal Birding Trail links over 50 existing birding sites in communities from Port Arthur to Brownsville. The Laguna Atascosa National Wildlife Refuge near Brownsville has the only confirmed nesting record in the nation of the yellow-green vireo, a bird found in the valley. This bird attracts about 200,000 visitors and generates an estimated $100,000 per year in local spending.

But other tourism opportunities could be developed and serve as an important source of jobs for the Border economy. The possibility of Major League Baseball spring training in Cameron and Hidalgo counties must be evaluated. This evaluation should consider not just the short-term bottom line, but the fact that spring training has been a prime catalyst in developing the South Florida economy into the tourism mecca it is today.

In addition, the rich history of the Border region could be further developed to support tourism. In this regard, the recent discovery of the explorer La Salle's ships on the Texas Gulf Coast could spawn tourism opportunities--provided the artifacts remain in the region.

Agriculture has also been a source of employment opportunities in the Border. From 1993 to 1995, total cash receipts from agricultural production in the 43-county Border region averaged $1.8 billion. Farm income boosted total personal income in the region by $331.6 million during this period. This area has long been a major producer of beef, goats, cotton, vegetables, and fruits, among other agricultural products.

Future development of agricultural production and processing may also need to explore niche markets as production in this area declines relative to the state and other areas. For example, total cash receipts from crops in the 43-county area fell from 21.5 percent of the state total during 1969-71, to 18.8 percent of the state total during 1993-95. The Border's share of the state's total cash receipts from livestock also fell during this period from 12.1 percent to 8.8 percent. As a share of total personal income, farm income in the 43-county Border region fell from 2.5 percent in the 1969-71 period to 0.6 percent in 1993-95.21

Historically, the processing of agricultural products in the Border region has provided numerous entry-level wage jobs, but trade trends appear to be pushing many of the jobs into Mexico. Considering a rising tide of concern among U.S. consumers about food safety--a level of concern that could turn into a crisis affecting international commerce in foodstuffs--it seems prudent to strengthen inspections of food imports as they cross the Texas-Mexico border into the U.S. Importantly, the point at which the journey of these products is interrupted for inspections also becomes an ideal point for the repackaging or processing of these commodities. The co-location of inspection, packaging, and processing functions for Mexican foodstuffs would not only generate entry-level jobs, but also could result in special labels of foodstuffs recognized by consumers as a proof of quality, ultimately ensuring the healthy growth of agricultural production throughout Mexico, the rest of Latin America, and the Border region.

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