Charles James

Jesus Cañas

Robert W. Gilmer

English

Research Papers in Economics

Crossroads 
ECONOMIC TRENDS IN THE DESERT SOUTHWEST
El Paso has followed national trends in job 
growth with a steady shift of employment out of 
manufacturing  and  into  services.  It  has  been  a 
sometimes painful transition for the city, with the 
number of manufacturing jobs cut nearly in half, 
from  41,100  to  22,100,  between  1990  and  2006. 
Losses were concentrated in traditional economic 
mainstays  such  as  textiles,  apparel  and  leather 
goods. 
  Meanwhile, services have grown to make up 
82.9 percent of private jobs in El Paso, up from 69.7 
percent in 1990. Indeed, service-sector employment 
has risen fast enough to keep the city’s private-sec-
tor job growth close to national trends since 1990, 
at annual rates of 1.3 percent versus 1.5 percent for 
the U.S.
  The  transition  to  services,  however,  has  not 
brought improvement in one key indicator of eco-
nomic progress. A city’s per capita income is often 
seen as a good measure of relative economic wel-
fare, in comparison with either the U.S. average or 
other metro areas. The rate of economic progress 
is sometimes measured by making this comparison 
over time, with an expectation that poor areas will 
move closer to the national average. 
  El Paso’s income level is disappointing—stand-
ing at only 67 percent of the U.S. average in 2005 
(Texas was at 94 percent). So is its lack of sustained 
progress toward U.S. norms. El Paso was at 64 per-
cent of the U.S. average in both 1995 and 1980. It is 
a poor city that has made little progress in closing 
the gap between itself and the rest of the state and 
the nation.  
  This lack of progress in relative per capita in-
come can be examined from many directions: the 
mix of high- and low-wage industries in the city, 
FEDERAL RESERVE BANK OF DALLAS  •  EL PASO BRANCH     ISSUE 1 • 2007
Low-Wage   
Occupations   
Remain a   
Hallmark of   
El Paso Economy
Mexico Regulatory 
Change Redefines 
Maquiladora
See page 6  Crossroads Issue 1 • 007  
other medium-sized cities or the 
conclusions of this article. As a 
result,  the  cost-of-living  adjust-
ment is not used in the rest of 
this analysis.1 
  Per capita income is personal 
income per person, made up of 
wages  and  salaries,  proprietors’ 
income,  property  income  (rent, 
interest and dividends) and gov-
ernment  transfers.  The  domi-
nant factor determining the lo-
cal income level is almost always 
wages,  salaries  and  employer-
paid benefits per worker. Table 2 
shows progress in the growth of 
wages, salaries and benefits per 
worker among all U.S. metropoli-
tan areas and the selected peer 
cities from 1999 to 2005. Overall, 
the  peer  cities  saw  real  wages 
and salaries grow at annual rates 
of  2.7  percent,  compared  with 
2.3 percent for the U.S. During 
this period, job growth was rela-
tively weak and the contribution 
of gains in real wages and sala-
ries  per  worker  dominated  the 
growth of total wages and sala-
ries—except  in  the  two  border 
cities.  In  El  Paso  and  McAllen, 
we see bigger contributions to in-
come from job growth than rising 
wage rates.  
  Note the very different paths 
to growth taken by El Paso, McAl-
len  and  Albuquerque.  McAllen 
employment    rose  at  a  remark-
able  4.6  percent  annual  rate, 
and while El Paso and Albuquer-
que  trailed  McAllen,  both  grew 
faster than the U.S. or peer-city 
averages at 1.3 and 1.2 percent 
per  year,  respectively.  McAllen 
and  Albuquerque  registered  in-
creases in real wages per worker 
that also exceeded the U.S. and 
peer-city averages, while El Paso 
lagged far behind all areas in its 
ability  to  raise  real  wages  per 
worker. In fact, what sets El Paso 
apart in these comparisons is the 
slow growth in compensation per 
worker.
Occupational Pay and Mix
  El Paso’s problem in recent 
years  has  been  less  one  of  job 
creation  and  more  one  of  rais-
the  low  educational  achieve-
ment level of the workforce or the 
sustained out-migration of high 
achievers. This article focuses on 
only one manifestation of a low-
wage  economy:  the  city’s  occu-
pational mix compared with the 
U.S. and peer cities. El Paso jobs 
are  concentrated  in  low-wage 
occupations, and these jobs pay 
poorly  compared  with  similar 
jobs in cities of comparable size 
and geography.
Per Capita Income and Wages
  Table 1 compares per capita 
income in El Paso with 12 peer cit-
ies, selected on the basis of simi-
lar population size (600,000 to 1 
million) and a common Southern 
or Southwestern location. Neigh-
boring  Albuquerque,  N.M.,  and 
fellow  Texas  border  city  McAl-
len  have  particular  relevance 
among these comparisons. Cities 
are ranked by per capita income 
level,  with  Raleigh,  N.C.;  Albu-
querque; and Little Rock, Ark., at 
the top of the list and El Paso and 
McAllen at the bottom. Adjusting 
for the cost of living, using the 
Council for Community and Eco-
nomic Research’s ACCRA index, 
does little to change El Paso’s or 
McAllen’s position relative to the 
Table 1
Per Capita Income Among El Paso’s Peer Cities, 2005
	 Adjusted	for	cost	of	living
	 Per	capita	 Per	capita
	 income	(dollars)	 Rank	 income	(dollars)	 Rank
Raleigh, N.C.  47,900  1  51,066  1
Albuquerque, N.M.  43,810  2  45,305  5
Little Rock, Ark.  43,761  3  45,919  4
Tulsa, Okla.  43,528  4  47,992  3
Knoxville, Tenn.  43,392  5  49,591  2
Charleston, S.C.  43,180  6  44,562  7
Greensboro, N.C.  43,095  7  *  *
Columbia, S.C.  42,567  8  44,760  6
Baton Rouge, La.  42,344  9  41,473  10
Greenville, S.C.  42,313  10  44,494  8
Sarasota, Fla.  40,670  11  38,476  11
El Paso, Texas  37,440  12  41,926  9
McAllen, Texas  30,761  13  37,017  12
*ACCRA data unavailable in 2005.
SOURCES:  Bureau of Economic Analysis; Council for Community and Economic Research, 
  ACCRA Cost of Living Index; Bureau of Labor Statistics; authors’ calculations.
Table 2
Increases in Real Wages, Salaries and Benefits per Worker, 1999–2005
	 U.S.	metros	 Peer	cities	 El	Paso	 McAllen	 Albuquerque
Real wages per worker 1999  $47,387  $38,702  $29,408  $23,243  $39,347
Real wages per worker 2005  $51,877  $42,533  $30,913  $24,830  $43,269
Percent of U.S. average 2005  100  82.0  59.6  47.9  83.4
Annual percentage increase
  Nominal wages  4.5  4.9  4.6  8.9  5.4
  – Inflation  2.2  2.2  2.2  2.2  2.3
  = Real wages  2.3  2.7  2.4  6.8  3.1
  – Employment  .5  .9  1.3  4.6  1.2
  = Real wages per worker  1.7  1.9  1.1  2.2  2.0
NOTES: Real wages are in 2005 dollars; percentage changes may not add up due to rounding.
SOURCES:  Bureau of Economic Analysis; Bureau of Labor Statistics; authors’ calculations.  Crossroads Issue 1 • 007  
ing worker wages to the level of 
other peer cities. Table 3 looks at 
this  problem  from  the  perspec-
tive of occupational mix. It shows 
22 occupations for the group of 
peer cities in 2005, ranked by pay 
level and divided into seven high-
paid,  seven  medium-paid  and 
eight low-paid occupations.2 The 
differences  in  peer-city  average 
pay are shown for El Paso, McAl-
len and Albuquerque. Neither El 
Paso nor McAllen does well in the 
comparison. El Paso pays higher 
wages than average in only five of 
22 categories, while McAllen pays 
more in only three. Albuquerque, 
in contrast, pays higher wages in 
12  of  22  occupations,  including 
five of the top seven.
  How many employees fall into 
each category of high-, middle- 
and low-paid occupations? Table 
4 shows concentration ratios for 
the peer cities overall and for El 
Paso, McAllen and Albuquerque.  
  Concentration ratio is defined 
as the percentage share of an oc-
cupation  in  the  city  divided  by 
the percentage share of that oc-
cupation in the U.S. The dividing 
line for this calculation is 1, with 
values greater than 1 indicating 
that a city is overrepresented in 
an occupation compared with a 
typical place in the U.S. and val-
ues less than 1 indicating that it 
is underrepresented. 
  Table 4 shows that these me-
dium-sized Southern and South-
western  cities  are  not  magnets 
for the highest-paid occupations, 
with  only  management  and 
health  care  practitioners  over-
represented among the best-paid 
occupations.  As  a  group,  these 
cities  fall  significantly  short  of 
U.S. averages in computers and 
math, business and finance, the 
sciences,  the  arts  and  farming. 
They  exceed  the  U.S.  by  a  sig-
nificant  margin  in  construction 
and  extraction,  installation  and 
repair, and health care support. 
Their bread and butter in terms 
of occupational mix lies mainly in 
the bottom half of the table.  
  If  the  group  of  peer  cities 
focuses  its  collective  energy  in 
the bottom half of the table, it is 
even truer for El Paso and McAl-
len because they are more heav-
ily  represented  in  the  lowest-
wage  occupations.  Albuquerque 
has strong positions among the 
highest-paid  occupations,  es-
pecially  legal,  architecture  and 
engineering, sciences and health 
care practitioners. Tables 3 and 4 
combined tell us that Albuquer-
que pays higher wages and sala-
ries than peer cities in more than 
half the occupations and does a 
better job of concentrating work-
ers in these well-paid positions. 
  A  simple  way  to  summa-
rize the results is to look at the 
El Paso’s transition 
from manufacturing to 
services was a move from 
one group of low-paid 
occupations to another.
Table 3
Average Wages by Occupation:  
El Paso, McAllen and Albuquerque vs. Peer Cities, 2005 (Dollars)
Difference	from	peer	cities
Peer	cities	 El	Paso	 McAllen	 Albuquerque
Management 76,539 –5,319 –5,579 –839
Legal 69,435 6,525 –10,535 –5,105
Computers and math 55,581 –3,291 –9,251 7,989
Architecture and engineering 55,568 –6,068 –12,468 9,342
Business and finance 49,310 –160 –7,980 1,660
Life, physical and social  
science
49,876 –2,976 –7,476 8,304
Health care practitioners 55,558 6,112 1,662 2,792
Arts, entertainment and media 36,792 –4,972 –7,402 –542
Education, training and library 37,321 1,719 –1,361 2,609
Community and social services 34,555 3,345 2,665 –1,235
Construction and extraction 29,925 –6,275 –7,815 565
Installation, maintenance  
and repair
33,980 –3,610 –7,880 1,320
Protective services 30,075 4,745 715 –225
Sales and related 29,146 –5,106 –7,386 –706
Office and administrative  
support
26,543 –2,523 –4,443 467
Production 28,072 –6,722 –6,392 218
Transportation and material  
moving
25,635 –3,025 –5,895 2,715
Health care support 21,492 –2,222 –4,762 2,008
Personal care and services 18,728 –3,608 –4,848 –318
Building and grounds 18,900 –2,450 –2,440 –750
Farming, fishing and forestry 21,103 –5,343 –7,793 –2,973
Food preparation and serving 16,065 –1,105 –1,345 –685
NOTES: Shading indicates that Albuquerque pays a wage premium in many more occupations than  
  El Paso or McAllen. Values are not adjusted for cost of living.
SOURCES: Bureau of Labor Statistics, Metropolitan Area Occupational Employment and Wage Estimates, 
  May 2005; authors’ calculations.    Crossroads Issue 1 • 007  
share of employment by city in the 
seven  highest-paid  occupations 
(Table 5). Raleigh (24.4 percent), 
Little Rock (21) and Albuquerque 
(20.9) stand at the top of the list. 
A ranking of the eight lowest-paid 
occupations shows El Paso is No. 4 
(52.5 percent) and McAllen No. 2 
(54.3), compared with a national 
average of 49.7 percent. Low-wage 
workers  in  Albuquerque  make 
up only 45.4 percent of the work-
force.
Three Cities Compared
  The occupational tables show 
El Paso’s transition from manufac-
turing to services was a move from 
one group of low-paid occupations 
to another. El Paso can no longer 
count  itself  as  a  manufacturing 
city.  Factory  jobs  made  up  only 
10.8 percent of private employment 
in El Paso last year, less than the 
12.1 percent U.S. average. Servic-
es grew to 82.9 percent of private 
employment, higher than the U.S. 
share. The city’s new service jobs, 
however,  remain  concentrated  in 
low-wage occupations. 
  Albuquerque, in contrast, has 
had  significant  success  in  build-
ing  a  knowledge-based  economy 
by capitalizing on the presence of 
government  facilities  like  Sandia 
National  Laboratories.  Albuquer-
que  used  these  jobs  to  build  an 
initial pool of highly trained and 
qualified workers in math, science 
and engineering. This, in turn, at-
tracted  tech-oriented  companies 
to the city to produce semiconduc-
tors, aircraft, aircraft avionics and 
engines, medical instruments and 
electrical equipment, adding to a 
workforce with one of the highest 
levels of Ph.D.’s per capita in the 
nation. Momentum in these indus-
tries was slowed by the 2000–01 
tech  bust,  but  the  footprint  of 
these skilled jobs remains clear in 
Albuquerque’s  occupational  mix. 
Even  with  the  tech  downturn, 
job growth in Albuquerque nearly 
matched that of El Paso.
  McAllen  stands  at  the  other 
Table 4
Concentration Ratios by Occupation:  
El Paso, McAllen and Albuquerque vs. Peer Cities, 2005
Concentration	ratio
	 Peer	cities	 El	Paso	 McAllen	 Albuquerque
Management 1.04   .77   .70 1.06
Legal   .94   .64   .62 1.26
Computers and math   .80   .45   .22   .84
Architecture and engineering   .96   .61   .27 1.87
Business and finance   .80   .61   .45   .83
Life, physical and social  
science
  .84   .41   .43 1.09
Health care practitioners 1.05   .91 1.04 1.08
Arts, entertainment and media   .80   .63   .46   .86
Education, training and library   .97 1.38 1.75   .95
Community and social services   .93   .81   .83 1.22
Construction and extraction 1.09   .83   .79 1.40
Installation, maintenance  
and repair 1.11 1.07   .88 1.04
Protective services 1.04 1.64 1.29 1.13
Sales and related 1.01 1.04   .99 1.06
Office and administrative  
support 1.00 1.01   .96   .96
Production   .99 1.04   .58   .53
Transportation and material  
moving
1.02 1.21   .94   .78
Health care support 1.07   .84 2.02   .96
Personal care and services   .98 1.28 2.90 1.20
Building and grounds 1.00   .87   .91 1.15
Farming, fishing and forestry   .76   .40 4.92   .37
Food preparation and serving 1.04 1.13 1.08 1.12
NOTE: Shading indicates occupations in which cities have a high concentration ratio (the percentage share 
of an occupation in the city divided by the percentage share of that occupation in the U.S.). 
SOURCES: Bureau of Labor Statistics, Metropolitan Area Occupational Employment and Wage Estimates, 
  May 2005; authors’ calculations.  
Table 5
Employment in High- and Low-Wage Occupations for El Paso and Peer Cities, 
2005 (Percent)
	 High	wage	 Low	wage
Peer city average  18.4  Peer city average  50.1
National average  19.5  National average  49.7
Raleigh  24.4  Greensboro  55.5
Little Rock  21.0  McAllen  54.3
Albuquerque  20.9  Greenville  53.6
Columbia  20.3  El Paso  52.5
Knoxville  20.2  Sarasota  52.5
Tulsa  20.1  Knoxville  50.9
Baton Rouge  19.5  Columbia  50.5
Charleston  18.8  Tulsa  50.4
Greenville  17.0  Charleston  50.0
Greensboro  16.2  Little Rock  49.3
Sarasota  15.3  Baton Rouge  45.7
El Paso  13.7  Albuquerque  45.4
McAllen  12.2  Raleigh  40.9
SOURCES: Bureau of Labor Statistics, Metropolitan Area Occupational Employment and Wage Estimates,  
  May 2005; authors’ calculations.  Crossroads Issue 1 • 007  
end of the wage and occupational 
spectrum,  with  rapid  job  growth 
fueled by an ample supply of low-
wage  labor  that  in  recent  years 
has  increased  the  concentration 
of  local  employment  in  low-wage 
occupations.  McAllen  might  be 
described as much like El Paso but 
without El Paso’s heavy losses in 
manufacturing employment. 
  McAllen’s job growth has been 
shared  by  fellow  Texas  border 
towns  Laredo  and  Brownsville, 
helped  by  the  North  American 
Free Trade Agreement and grow-
ing cross-border trade due to the 
maquiladora industry and by finan-
cial stability and growth in Mexico. 
These trends have also been seen 
in  El  Paso,  but  the  other  border 
towns  have  an  additional  advan-
tage due to their locations between 
the Texas Triangle, formed by the 
state’s largest cities, and Monter-
rey,  an  important  industrial  cen-
ter for Mexico. El Paso is twice as 
far as the other border cities from 
the  Texas  Triangle—the  state’s 
economic engine. This has been a 
handicap as low-wage labor has be-
come scarce elsewhere in the state 
in  recent  years  and  businesses 
have turned first to cities closer to 
the Triangle.
  The key to moving up the oc-
cupational  ladder  is  preparation 
through  education  and  experi-
ence.  This  is  as  true  collectively 
for a city or metropolitan area as 
it is for an individual. The role of 
education is starkly visible in Table 
6, which shows the educational at-
tainment of those 25 years and old-
er in the metropolitan areas under 
discussion. 
  Looking at the percentage of 
the population with college train-
ing, for example, we find Albuquer-
que well above the national norms 
for those who have attended some 
college, as well as for those who 
received bachelor’s and advanced 
degrees. El Paso and McAllen fall 
far  short  of  the  U.S.  standard  in 
all categories.3 El Paso’s inability 
to  better  capitalize  on  the  fac-
Table 6
Educational Attainment by Metropolitan Area (Percent)
	 High	school	 Some	 Bachelor’s	 Advanced
	 diploma	 college	 degree	 degree
Albuquerque  24.1  30.0  18.4  13.4
El Paso  22.6  21.6  11.0  5.6
McAllen  20.3  14.4  8.4  4.5
United States  28.6  27.4  15.5  8.9
SOURCE:  2000 census.
tory-to-services  shift  and  bring 
in  higher-paying  occupations  is 
based  squarely  on  the  poor  edu-
cational  achievement  of  its  labor 
force.  McAllen’s  recent    income 
and  employment  gains—remark-
able as they were for the number of 
jobs created in recent years—have 
also been due to the expansion of 
low-wage jobs rather than a move 
up the occupational ladder.
  The  occupational  and  educa-
tional data suggest that a return to 
the basics—building a more highly 
educated and better trained work-
force—is the key to raising wages 
in El Paso and McAllen.
—Jesus Cañas 
Robert W. Gilmer 
Charles James
Cañas  is  an  assistant  economist 
and James is a research assistant 
at the El Paso Branch of the Federal 
Reserve  Bank  of  Dallas.  Gilmer  is 
a vice president and senior econo-
mist at the Federal Reserve Bank of 
Dallas.
Notes
1 This is in contrast to marked differences 
in the cost of living for the nation’s largest 
metropolitan  areas.  See  “Income  Growth 
Shows  Houston’s  Economic  Strength  and 
Maturity,” by Robert W. Gilmer and Charles 
L. James, Federal Reserve Bank of Dallas 
Houston Business, December 2006. 
2 Data on the occupational distribution and 
wages  paid  by  metropolitan  area  recently 
became  available  for  2006  but  show  no 
changes that would significantly affect the 
conclusions of this article. We left Tables 3 
and 4 with 2005 data to better match the 
personal income data for 2005 shown in Ta-
bles 1 and 2. The 2005 personal income data 
are the latest available for that data set.
3 The other two Texas border cities—Lar-
edo and Brownsville—have educational at-
tainment similar to that of McAllen.
El Paso’s inability to 
better capitalize on the 
factory-to-services shift 
and bring in higher-
paying occupations 
is based squarely on 
the poor educational 
achievement of 
its labor force.

Low-wage occupations remain a hallmark of El Paso economy

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Low-wage occupations remain a hallmark of El Paso economy

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