Before the maquiladora program’s MAQUILADORAS implementation, cities along Mexico’s northern border had among the highest Impact on Texas Border Cities unemployment rates in the country, typically in double digits. Because of the Lucinda Vargas industry’s settlement in these cities and its consistent record of employ- ment growth, these locations now have among the nation’s lowest unemploy- ment rates. In fact, maquiladoras have become so important to the border that in Ciudad Juárez, for example, the majority of all jobs in 2000—60 per- cent—came from the maquiladora sec- tor. Moreover, the overwhelming major- ity of the city’s manufacturing jobs—87 percent—were attributable to maquila- dora companies last year.

Technology and Human Capital When Mexico’s maquiladora pro- gram began in 1965, most companies were basically assembly operations re- quiring unskilled labor. The industry has evolved, and factories now use Mexico’s maquiladora industry has percent in 1983. Further, maquiladora more sophisticated production tech- become an increasingly significant com- exports, at $79.4 billion in 2000, made niques and require more skilled labor. ponent of the Mexican economy as well up almost half Mexico’s total exports For example, in 2000, technicians repre- as an important part of U.S. corporate (47.7 percent) and the majority of its sented 12 percent of maquiladora em- strategy in achieving competitively manufacturing exports (54.7 percent). ployment, compared with 8.8 percent in priced goods in the world marketplace.1 Maquiladoras are Mexico’s top source 1975. In addition, the skill level of the Maquiladoras are largely concentrated of foreign exchange, netting almost $18 maquiladoras’ largest labor component in Mexican cities that border the United billion last year. Table 1 summarizes the —direct line workers—has been up- States. Since Texas encompasses about maquiladora industry’s key indicators graded to suit newer technologies.2 half the U.S.–Mexico border, maquila- for 2000. Mexico’s maquiladora companies doras are especially relevant to the The maquiladora industry also has today boast state-of-the-art production state’s economy. contributed significantly to Mexico’s re- technology. Research and design cen- To assess the maquiladoras’ impor- gional, technological, human capital and ters are now part of the maquiladora tance to the border economy, we must infrastructure development, as illustrat- landscape as well. A key example is the first understand how maquiladoras ed by what is happening at the border. affect Mexico. This article looks at the maquiladora industry’s performance in Regional Development Table 1 Mexico and then the industry’s signifi- In 2000, Mexican border cities rep- Maquiladora Industry Key Indicators, 2000 cance for Texas border cities. resented 62 percent of overall maquila- dora employment (nearly 797,000 work- Change from Mexico’s Northern Border ers) and 70 percent of production ($50 2000 1999 The maquiladora industry has boost- billion). The two locations with the Plants 3,590 8.9% ed job creation, exports and foreign highest concentration of maquiladora Employment 1,285,007 12.7% exchange in Mexico. During 1983–2000, investment are Ciudad Juárez (across Raw materials (billions) Imported $53.5 19.8% annual growth in maquiladora em- from El Paso) and Tijuana (across from Domestic $ 1.8 38.5% ployment and exports averaged almost San Diego). Together, these two cities in Total $55.3 20.3% 14 percent and 21 percent, respectively. 2000 represented 34 percent of Mexico’s Value added (billions) $17.8 32.4% At about 1.3 million workers, maquila- total maquiladora employment, with Exports (billions) $79.4 24.3% dora employment represented 29 per- more than 249,500 workers in Ciudad SOURCES: Federal Reserve Bank of Dallas El Paso Branch, with data cent of Mexico’s manufacturing jobs Juárez and over 187,300 workers in from Instituto Nacional de Estadística, Geografía e in 2000, up from slightly more than 7 Tijuana. Informática; export data are from Banco de México.

June 2001 | Federal Reserve Bank of Dallas 25 Delphi Mexico Technical Center in Ciu- in the area and the state and federal Maquiladora companies are teaming dad Juárez. This center, which until governments, incorporates state-of-the- with the Mexican government to build April 1999 was part of the General art infrastructure in training highly adequate and affordable housing for Motors Corp. maquiladora production skilled technicians in manufacturing workers and to assist them with financ- infrastructure, is dedicated to the re- specialties. Companies award scholar- ing. Delphi Automotive launched the search and design of auto parts used by ships to the center’s two-year training first such program in 1997. Other large the world’s top auto producers. Consid- programs. maquiladora companies have followed ered the most advanced of 31 such with similar programs. Delphi centers around the world, it Infrastructure Development Maquiladoras also have partici- employs almost 2,000 workers, most Though the maquiladora industry is pated in improving the infrastructure of whom are engineers. The center growing at more dynamic rates in the of their border locations. For example, opened in April 1995 and within four interior of Mexico, the border’s appeal is in Ciudad Juárez, maquiladoras make years had doubled capacity. still high among new investors, and, annual contributions to the city’s The technological evolution of the thus, growth at the border has been sus- budget that are targeted for different maquiladora industry would not have tained. For example, border employ- purposes, such as city road improve- been possible without the required ment growth averaged 7.8 percent per ments.4 Also, maquiladoras have finan- professional and skilled personnel. year during the 1990s, while the cor- cially supported improvements to cer- This increasingly skilled workforce responding figure for the interior was tain commercial bridges, which are comes, in large part, from the maquila- 17 percent. However, since the border’s critical to their daily production ship- doras themselves through training and employment base (nearly 797,000 work- ments across the border.5 development at all levels. Typically, ers) is higher than the interior’s (488,200 training includes in-house programs workers), job growth of almost 8 per- Texas Border Cities as well as visits to the company’s man- cent on the border is still impressive. The Texas border is host to the ufacturing facilities outside Mexico. Moreover, during the second half of majority of the maquiladoras along the Maquiladoras also sponsor vocational the 1990s, when the entire maquila- U.S.–Mexico boundary. Table 2 lists the programs at local technical centers dora industry rebounded as a result of cities across from Texas with a and trade schools to ensure that work- the peso devaluation, border employ- maquiladora presence and outlines ers’ skills match those in demand by ment averaged double-digit growth on their individual participation in the the industry. a yearly basis (11.1 percent).3 industry. In 2000, these cities’ com- A recent example of the maquiladora One outcome of the border’s dynamic bined share of total maquiladora em- industry’s efforts at educating its work- maquiladora growth has been infra- ployment and production equaled 35.4 force is the Center for High Technology structure bottlenecks in the region, percent and 40.4 percent, respectively. Training (Centro de Educación en Alta which have been only partly alleviated Within the border region, their com- Tecnología, or CENALTEC), established by the industry’s movement to the in- bined share represented the majority— in Ciudad Juárez in March 2000. This terior. The border’s growth has led to 57.1 percent in employment and 57.5 center, created through a collaborative such problems as insufficient or inade- percent in production. This is equiva- effort between maquiladora companies quate housing for maquiladora workers. lent to a maquiladora industry employ-

Table 2 Maquiladora Industry Along the Texas–Mexico Border, 2000

Ciudad Juárez Ojinaga Ciudad Acuña Piedras Negras Nuevo Laredo Reynosa Río Bravo Matamoros (El Paso) (Presidio) (Del Rio) (Eagle Pass) (Laredo) (McAllen) (McAllen) (Brownsville) Plants 308 8 56 38 54 117 13 119 Percent of total 8.6 .2 1.6 1.1 1.5 3.3 .4 3.3 Percent of border 14.3 .4 2.6 1.8 2.5 5.4 .6 5.5 Employment 249,509 967 32,130 14,546 22,603 66,091 3,287 66,023 Percent of total 19.4 .1 2.5 1.1 1.8 5.1 .3 5.1 Percent of border 31.3 .1 4.0 1.8 2.8 8.3 .4 8.3 Raw Material Imports (millions) $12,785 $25 $1,099 $329 $1,253 $3,894 $104 $3,254 Percent of total 23.9 .0 2.1 .6 2.3 7.3 .2 6.1 Percent of border 32.6 .1 2.8 .8 3.2 9.9 .3 8.3 Gross Production (millions) $16,191 $37 $1,386 $468 $1,648 $4,826 $145 $4,065 Percent of total 22.7 .1 1.9 .7 2.3 6.8 .2 5.7 Percent of border 32.4 .1 2.8 .9 3.3 9.7 .3 8.1

SOURCES: Federal Reserve Bank of Dallas El Paso Branch, with data from Instituto Nacional de Estadística, Geografía e Informática.

26 Federal Reserve Bank of Dallas | June 2001 Table 3 The employment link between U.S.–Mexico Trade by Texas Border Port of Entry, 2000 maquiladoras and U.S. border cities is (Millions of U.S. dollars) not exclusive to El Paso. Research has Exports to Mexico Imports from Mexico Total trade found a strong positive correlation Laredo 39,283.6 45,536.3 84,819.9 between U.S. border city employment El Paso 17,520.4 22,810.6 40,331.0 and export (maquiladora) production Hidalgo 6,221.9 6,888.5 13,110.4 in the neighboring Mexican border city.7 Brownsville–Cameron 6,374.1 6,049.5 12,423.6 Further, results show that for larger Eagle Pass 4,283.5 3,041.1 7,324.6 border cities, such as El Paso, the Del Rio 1,156.1 1,282.6 2,438.7 Presidio 112.8 153.0 265.8 employment effect is strongest in man- Rio Grande City 118.8 116.6 235.4 ufacturing, while for smaller border Progreso 129.0 15.6 144.6 cities, such as Laredo, the employment Roma 92.4 16.1 108.5 effects are strongest for the transporta- Fabens .9 .0 .9 tion and wholesale trade industries. Total Texas ports 75,293 85,910 161,203 Indeed, two of the three other major Total all border ports 95,692 120,409 216,101 border cities in Texas—Brownsville and Texas share 78.7% 71.3% 74.6% McAllen—are home to plastic injec- SOURCES: Texas Center for Border Economic and Enterprise Development, Texas A&M International University, with data from U.S. Department of tion molding suppliers that cater to Commerce. the maquiladora industry. In addition to El Paso’s 40 plastic injection mold- ing companies, Brownsville has 11 and ing more than 455,000 workers in 713 medical and consumer goods. More- McAllen has 13.8 Laredo, which has a plants and with a total production value over, employment in plastics manufac- minimal manufacturing presence, is of nearly $29 billion. turing in El Paso—up 101 percent since the exception, with no suppliers in this Texas border cities have reaped im- 1990—is highly skilled. From 1990 category.9 Chart 1 shows the growth portant benefits from their maquila- through 1999, for example, this sector’s trend of the rubber and miscellaneous dora neighbors. Transportation and hourly compensation was, on average, plastics manufacturing subsector in all customs services have flourished on the nearly 21 percent higher than that of the four cities for 1990–99. The only city U.S. side of the border because of the apparel sector, El Paso’s largest and that shows a decline is Laredo. maquiladora industry’s large trade flows most established manufacturing sector. through border ports of entry (Table 3). The success of plastic injection molding Skilled-Labor Bottlenecks These companies typically maintain in the area is also evidenced by the Keeping El Paso from taking full distribution facilities and administra- impressive growth of plastic product advantage of the maquiladora supplier tive offices on the U.S. side, stimulating exports through El Paso, which equaled market is an insufficient pool of skilled the industrial real estate sector of Texas $806 million in 1999, up more than 700 workers. Though plastics manufactur- border cities. Maquiladoras also create percent from the 1993 level. ers in El Paso have used in-house train- jobs for the U.S. border in the legal, accounting and financial professions. Even the hotel, car rental and restaurant Chart 1 industries profit from maquiladoras Rubber and Miscellaneous Plastics Employment for Major Border MSAs because corporate personnel and other maquiladora visitors usually stay and Index, 1990 = 100 eat on the U.S. side.6 225 El Paso Beyond the service industry, border 200 manufacturing is increasingly bene- 175 fiting from maquiladoras. Industry sup- 150 pliers have been expanding or relocat- Brownsville 125 ing their operations to cities such as El 100 Paso to be close to their customer bases McAllen across the border. For instance, in 1999, 75 there were 40 plastic injection molding 50 companies in El Paso, employing more 25 Laredo than 4,100 workers. These companies 0 mostly serve the maquiladora industry ’90 ’91 ’92 ’93 ’94 ’95 ’96 ’97 ’98 ’99 in Ciudad Juárez in sectors that range NOTE: The rubber and miscellaneous plastics industry in Laredo reached such a small level in 1999 that data for that year were not made available. from automotive and computers to SOURCE: Texas Workforce Commission.

June 2001 | Federal Reserve Bank of Dallas 27 El Paso, NAFTA and Worker Retraining

Between 1994 and 2000, a total of 330,107 new jobs—or growth of almost 14 percent the largest of its kind ever awarded to a city U.S. workers were certified to receive benefits between 1993 and 2000.1 NAFTA reasonably by the Labor Department. In 1998, project under the NAFTA Transitional Adjustment Assis- could be credited with some of this job growth ARRIBA (Advanced Retraining and Redevelop- tance (TAA) program. This program was created in areas servicing the increased trade through ment Initiative in Border Areas) was launched in in 1994 through NAFTA to help workers affect- the border resulting from NAFTA.2 This implies El Paso with a state grant of $1 million. ARRIBA ed by increased imports from Mexico and new jobs in transportation and distribution serv- secured additional funding totaling more than Canada or by shifts in U.S. production to those ices as well as in professional services such as $1.5 million from the governor’s Discretionary countries as a result of the agreement. El Paso legal, accounting, financial and customs broker- Fund ($600,000), the North American De- has the largest number of workers certified age. Finally, the unemployment rate has been velopment Bank ($450,000), El Paso County under this program—13,450 through 2000. on a downward trend in El Paso since NAFTA ($250,000) and El Paso Empowerment Zone Nearly 8,000 of these workers (more than 59 started, as it has for Texas’ other major border Corp. ($211,297). percent) were displaced from El Paso’s apparel cities (see chart ). Last year the El Paso Chamber of Com- industry. Interestingly, El Paso’s No. 1 position in merce opened the Center for Worker Prepared- While many point to the TAA figures as evi- NAFTA TAA certifications in the United States ness with a $1.4 million grant from the U.S. dence of NAFTA’s negative impact on El Paso, has placed the city in the national spotlight, Department of Commerce and a $1 million NAFTA also has created jobs for the city. Unfor- attracting funding toward retraining programs interest-free loan from the North American tunately, because no accounting system equiv- for trade-displaced workers. For example, the Development Bank. In addition, local educa- alent to the TAA tracks the job-growth side of U.S. Department of Labor awarded El Paso, tional and training institutions have received the equation, an assessment of NAFTA’s net through the city’s Proactive Reemployment funding for programs such as the El Paso impact on El Paso’s employment is not possible. Project or PREP, a $45 million grant to retrain Manufacturing Training Consortium at El Paso Since NAFTA’s passage, however, El Paso has some 4,000 workers, most of them former Community College. Thus, if NAFTA is to be registered a net gain in employment—30,733 garment industry employees. This grant is cited as the cause of much worker displace- ment in El Paso, it also has contributed toward Unemployment at the Texas Border an improved worker-training infrastructure. (Major MSAs) Percent Notes 25 1 If a broader definition of employment is used, including jobs outside the Social Security system, El Paso’s employment gain between 1993 and 2000 20 was larger, at 40,635 new jobs. See Borderplex McAllen Economic Outlook: 2000–2002, Border Region Brownsville Laredo Modeling Project, The University of Texas at El 15 Paso, November 2000, Business Report SR00-1. 2 El Paso is the second-largest land port at the border for U.S.–Mexico trade, after Laredo. During 1994– 10 El Paso 2000, total U.S.–Mexico trade through El Paso grew 122 percent to $40.3 billion. The trade increase 5 was due to both maquiladora-specific and NAFTA- ’90 ’91 ’92 ’93 ’94 ’95 ’96 ’97 ’98 ’99 ’00 specific activity. SOURCE: Texas Workforce Commission.

ing to develop their workers into skilled injection-molding techniques but also result of worker displacements in the technicians, a broader effort is required in metal stamping, tool and die, and city’s apparel industry (see box titled “El to generate a continuous supply of other areas that complement the man- Paso, NAFTA and Worker Retraining”). skilled labor. Recognizing this need, the ufacturing processes of maquiladora The goal is to transform an unskilled city has implemented various programs suppliers. El Paso also has received labor pool into the skilled workers to train workers not only in plastic- multiple worker retraining grants as a sought by the industries coming to

28 Federal Reserve Bank of Dallas | June 2001 8 town in pursuit of the maquiladora Vargas is a senior economist at the Brownsville Economic Development Council and McAllen Economic Development Corp. market across the border. El Paso Branch of the Federal Reserve 9 The state’s other border cities face Bank of Dallas. In 2000, for example, only 2.6 percent of Laredo’s nonfarm employment—some 1,800 workers—was similar situations. Research on maquila- working in manufacturing, compared with 15 per- dora market opportunities for border Notes cent in El Paso, 12 percent in Brownsville and 8 cities in South Texas shows that 1 For an overview of the maquiladora industry and its percent in McAllen. importance for the U.S. and Mexican economies, maquiladoras are willing to enhance 10 See J. Michael Patrick, “Maquiladoras and South see “The Binational Importance of the Maquiladora their base of local suppliers. The com- Texas Border Economic Development,” Journal of Industry,” Southwest Economy, Federal Reserve panies’ savings in inventory and trans- Borderlands Studies, Spring 1989, pp. 89–98. The Bank of Dallas, Issue 6, November/December 1999, portation costs are obvious. However, author suggests that the situation has not changed pp. 1–5. one bottleneck is a workforce with inad- much in the ensuing 12 years. 2 Direct labor represented 80.9 percent of total equate skills.10 11 A 1988 survey of maquiladora companies in Ciudad maquiladora employment in 2000. Although the Juárez alone showed suppliers in every U.S. state majority of these workers (55.2 percent) were except Hawaii, with a large portion in Midwestern Lucrative Market female, this share is down considerably from 78.3 and Northeastern states. See William L. Mitchell El Paso has carved an important percent in 1975. In fact, in the industry’s top two and Lucinda Vargas, “The Economic Impact of the locations—Ciudad Juárez and Tijuana—females niche in serving the maquiladora Maquiladora Industry in Juárez on El Paso, Texas, make up just under half (49.7 percent) of the direct- industry, especially in plastic injection and Other Sections of the United States,” Grupo labor workforce, putting them in the minority. molding. This demonstrates that border Bermúdez Industrial Developers, Ciudad Juárez, cities such as El Paso—which have tra- 3 Because maquiladora companies have dollar- Chihuahua, 1989, photocopy. Current anecdotal ditionally lacked a sophisticated in- denominated budgets but their costs are in pesos, evidence shows that maquiladoras continue to the overnight impact of any peso devaluation is dustrial base—can nonetheless attract have close links with suppliers throughout the essentially a reduction in their peso-based costs. United States. investments using their formidable ad- Maquiladoras have therefore responded to devalu- 12 In 2000, the weighted average unemployment rate of vantage with the lucrative maquiladora ations in Mexico by substantially expanding their Texas’ four major border cities was more than double market. The total maquiladora inputs or operations. the national and state unemployment averages. components market in Ciudad Juárez 4 According to the Treasury Department of the city of 13 ADC Telecommunications offers an example of how alone was worth nearly $13 billion Juárez, the voluntary contribution that each maquila- cities like El Paso are developing industrially in dora in Juárez gives to the city each year, on a vol- in 2000. The industry’s components response to the presence of maquiladoras across untary basis, is $15 per employee and is based market along the Texas border—from the border. The company manufactures telecom- on each company’s employment base at year-end. Juárez to Matamoros—was a massive munications equipment at two plants in Juárez and Not all maquiladoras contribute, but a majority (54 $23 billion in 2000, roughly 42 percent one in Delicias, Chihuahua. Late last year, ADC percent based on employment) do. Last year, opened a metal fabrication plant in El Paso to feed of the maquiladora industry’s total maquiladora contributions to the city of Juárez components to its Mexican facilities. ADC also has components market ($55.3 billion). equaled $1.6 million. a distribution center in Santa Teresa, N.M., just west Maquiladoras import 97 percent of 5 For the improvements to the Bridge of the Americas of El Paso. the components they use. And 80 to 85 between El Paso and Juárez in 1996–98, for ex- percent of these come from the United ample, various private-sector entities in Juárez— States, mostly from states not bordering including the maquiladora association—contributed Mexico.11 As more suppliers seek to some $7 million. move closer to their maquiladora cus- 6 Delphi Automotive, until April 1999 a part of General tomer base, the border stands to bene- Motors Corp., has conducted annual studies since fit. The border’s traditionally high un- 1996 on the total estimated economic impact on El Paso of Delphi’s operations in Ciudad Juárez. employment rate translates into an Beyond including elements such as what the com- 12 available labor pool in the region. pany pays the city in property taxes for distribution However, this workforce has to be and warehousing facilities, the study also includes transformed into the skilled labor that expenditures in El Paso on hotels, restaurants and high-tech maquiladora suppliers need. rental cars by corporate visitors to Delphi plants. In Should this happen, we could see in- June 1999, Delphi’s total (direct and indirect) eco- dustrialization of the border at a time nomic impact on El Paso was estimated at above $285 million. when the rest of the country is de- 7 industrializing, precisely because of the The overall elasticity—or responsiveness—of U.S. border-city employment with respect to Mexican lack of available workers.13 export production is between 0.11 and 0.2. In other For Texas border cities, the presence words, a 10 percent rise in export manufacturing in of maquiladoras across the border a Mexican border city leads to a 1.1 to 2 percent rise translates into more and better-paying in employment in the neighboring U.S. border city. jobs. In short, maquiladoras help the See Gordon H. Hanson, “U.S.–Mexico Integration Texas border region move up the eco- and Regional Economies: Evidence of Border-City nomic ladder. Pairs,” forthcoming in Journal of Urban Economics.

June 2001 | Federal Reserve Bank of Dallas 29