Mexico’s Problem is Militant Unions, Not NAFTA

Last night I went to bed with the WSJ, astounded by the rich volume of fascinating content from which to draw conclusions and some of which I thought, would make good blogs. One piece by Mary Anastasia O’Grady pointed out what’s good about NAFTA, and why Mexico’s belligerent unions are a big part of that country’s problem.

“Hiring, maintaining and firing a worker is so costly [in Mexico] that employers to to great length to avoid taking on new employees. This produces an excess of workers relative to demand, depressing wages and benefits. Yet it is not only high mandated costs that reduce opportunities. If a worker isn’t in the union he can’t work, so the union bosses have extraordinary power. Promotions are based on seniority, not merit, so there is no incentive to learn new skills or new technologies. O’Grady suggests that this is why Pemex, the state-owned oil company lost $484 million last year even as the price of oil climbs above $100 a barrel.

This climate of militant unions who launch pre-emptive strikes on hotel resorts under construction pushes Mexicans to the underground economy. One Mexican researcher said that those workers who toil in the ‘tradeable sector, those who work for businesses with foreign investments earn 40-50% more than in regular Mexican firms. These are the businesses that NAFTA brought to the country.

While Hillary and Obama make speeches decrying NAFTA, claiming they don’t have enough US style labor protections, it’s just not true: Mexico has much more militant, and more burdensome labor regulations than anywhere else in North America. Mexico’s famous one-party rule was finally broken in the early 90s, and NAFTA was a central reason, bringing greater access to capital and trade.