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Manufacturing in the United States, Mexico, and Central America: Implications for Competitiveness and Migration by Peter A

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Manufacturing in the United States, Mexico, and Central America: Implications for Competitiveness and Migration by Peter A THE REGIONAL MIGRATION STUDY GROUP Manufacturing in the united StateS, Mexico, and central aMerica: iMplicationS for coMpetitiveness and Migration By Peter A. Creticos and Eleanor Sohnen THE REGIONAL MIGRATION STUDY GROUP MANUFACTURING IN THE UNITED STATES, MEXICO, AND CENTRAL AMERICA: Implications for Competitiveness and Migration Peter A. Creticos Institute for Work and the Economy and Eleanor Sohnen Migration Policy Institute January 2013 Acknowledgments This research has been made possible through the generous support of the Tinker Foundation, the MacArthur Foundation, and the Open Society Foundations. This report was produced for the Regional Migration Study Group convened by the Migration Policy Institute (MPI) and the Latin American Program of the Woodrow Wilson International Center for Scholars. The Study Group, a three-year initiative, is acting as a virtual think tank for policymakers and civil society officials in the United States, Mexico, and Central America who manage day-to-day migration relations and other issues related to human capital and global competitiveness. A primary goal of the Study Group is to develop and promote a longer-term vision of how to build a stronger social and economic foundation for these countries by enhancing the region’s human-capital infrastructure. Building up the region’s human capital — through education and workforce development reforms that gradually develop common standards in key sectors across the region — should create better economic opportunities for the region’s citizens, creating an engine for growth in each country and strengthening regional competitiveness. Over time, success in this regard will mitigate today’s concerns about the scope and “quality” aof regional migration while setting the stage for future regional migration to be more of a genuine choice, rather than a necessity. The manufacturing sector holds promise for all the countries of the region in terms of creating better formal-sector jobs and in generating positive economic spillovers, including increased regional competitiveness. The Study Group’s mission, membership, and research can be found at: www.migrationpolicy.org/regionalstudygroup. © 2013 Migration Policy Institute. All Rights Reserved. Cover Photo: Modified version of North American map (2725801) – BigStockPhoto.com Cover Design: Burke Speaker, MPI Typesetting: Rebecca Kilberg, MPI No part of this publication may be reproduced or transmitted in any form by any means, electronic or mechanical, including photocopy, or any information storage and retrieval system, without permission from the Migration Policy Institute. A full-text PDF of this document is available for free download from: www.migrationpolicy.org. Information for reproducing excerpts from this report can be found at www.migrationpolicy.org/about/copy.php. Inquiries can also be directed to: Permissions Department, Migration Policy Institute, 1400 16th Street, NW, Suite 300, Washington, DC 20036, or by contacting [email protected]. Suggested citation: Creticos, Peter A. and Eleanor Sohnen. 2013. Manufacturing in the United States, Mexico, and Central America: Implications for Competitiveness and Migration. Washington, DC. Table of Contents Executive Summary ................................................................................... 1 I. Overview of Manufacturing in the United States ............................ 2 II. Overview of Manufacturing in Mexico and the Northern Triangle . 4 III. Understanding Advanced Manufacturing and its Potential ............. 6 Implications for the Region ..................................................................................................................7 IV. Productivity and Skills in Manufacturing ........................................... 8 A. Manufacturing Employment in Mexico and the Northern Triangle ....................................9 B. The Region’s Immigrants in the US Workforce .....................................................................12 V. Manufacturing Performance in Mexico and Central America ...... 15 A. Findings from the Organization for Economic Cooperation and Development ...........15 B. Other Findings on R&D and FDI ..............................................................................................16 C. Opportunities for Advanced Manufacturing ..........................................................................17 VI. The Role of Standards, Credentials, and Certification .................. 17 A. Quality Standards and Business Performance .......................................................................17 B. Credentials and Skills Standards ...............................................................................................18 C. Implications for Advanced Manufacturing Development and for Immigration...............20 VII. Looking Forward ............................................................................... 22 Appendices ............................................................................................... 24 Glossary..................................................................................................... 26 Works Cited ............................................................................................. 27 About the Authors ................................................................................... 30 MIGRATION POLICY INSTITUTE Executive Summary This report examines trends in manufacturing — with a focus on advanced manufacturing — in Mexico, Guatemala, Honduras, El Salvador, and the United States. The manufacturing sector is a significant source of employment for people born in Mexico and Central America’s Northern Triangle (Guatemala, Honduras, and El Salvador).1 Around 17 percent of the workforce in these four countries is employed in manufacturing, and immigrants from these countries make up 8 percent (1.3 million people) of the US manufacturing workforce. Although these countries’ manufacturing histories and contexts are quite different, the sectors are increasingly interdependent, and the prospect of moving up the manufactur- ing value chain by building human capital in each of these countries potentially holds great promise for improving both individual livelihoods and overall regional competitiveness. maqui- Theladora economies of Mexico, and to a lesser extent, Guatemala, Honduras, and El Salvador, have benefited from aggressive2 manufacturing-attraction strategies. At the same time, the achievements of the development strategy have masked important flaws that threaten to stymie the promise of even greater economic growth. Proximity to the United States makes it possible for manufactured goods from Mexico, Guatemala, Hon- duras, and El Salvador to compete effectively against lower-wage regions in the world. Time to market is lower, as are many logistics and transportation costs. Multinational enterprises (MNEs) based in the United States are within two time zones of plants in these countries, supporting near-real-time communi- cations between design and production facilities. But these factors also reduce these countries’ leverage in securing spillover benefits that could be used to jump-start investment in research and development (R&D) and in endogenous supplier businesses. Whereas China, India, and other Asian manufacturing “ti- gers” represent gateways to new markets and can demand R&D and other innovation-related investment in production, Mexico, Guatemala, Honduras, and El Salvador have thus far only traded on their relation- ship to the United States. The economies of Mexico, and to a lesser extent, Guatemala, Honduras, and El Salvador, have benefited from aggressive manufacturing-attraction strategies. maquila Looking forward, these countries need to achieve a second, post- transformation. This would en- tail leveraging their existing manufacturing base and strong position in free trade by linking it with R&D and incremental and process innovation as a means of reaching new markets. Such changes are especially important for high-tech products in which advanced manufacturing techniques play a critical role. As in the shift in focus from import substitution to exporting that these economies underwent in the 1960s and ’70s, large-scale changes must occur. First, human-capital formation must be on a par with that of developed countries. This development goes well beyond education outcomes, as measured by the Organization for Economic Cooperation and Development (OECD) Programme for International Student Assessment (PISA) and other standardized means. The workforce must have the skills and proficiencies to compete with counterparts in advanced manufacturing regions such as northern Europe, Japan, and the United States. Credentialing standards, training systems, and outcome measures that are comparable 1 Authors’maquiladora calculations using themaquila data from national labor force surveys from International Labor Organization (ILO), “Labor Statistics Database (LABORSTA),” http://laborsta.ilo.org/. 2 A (abbreviated ) is a manufacturing plant that imports and assembles duty-free components for export. Manufacturing in the United States, Mexico, and Central America 1 MIGRATION POLICY INSTITUTE to those in industrialized economies will serve as the basis for attracting talent from outside the region as well as expanding employment options for homegrown talent. Second, domestic business development policies and practices must be aligned to support innovation and the creation and growth of small
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