North American Free Trade Agreement ; Employment - Texas ; Income

Eric Dittmar

Keith R. Phillips

English

Research Papers in Economics

The 1990s have been a decade
of change along the Texas/Mexico
border. In this historically low-
wage, high job-growth region, in-
come and earnings in the 1990s
have outpaced the national aver-
age. The gains have come during
a period marked by the imple-
mentation of the North American
Free Trade Agreement (NAFTA), a
sharp mid-decade decline in the
Mexican peso and economy, and
a prolonged expansion of the
maquiladora industry in northern
Mexico. While these factors have
affected the fortunes of the border
economy, a key to future income
growth may be a significant in-
crease in public education spend-
ing that began in the 1990s.
A Tale of Two Economies
“It was the best of times, it was
the worst of times.” Like the
famous Charles Dickens novel, the
border economy’s story is one of
contrasts. Although historically the
border has had high unemploy-
ment and low income, it also has
a high job-growth rate. Just how
poor is the border, and what
accounts for its high rate of job
growth? The answers are varied,
but obviously the region’s geo-
graphical and cultural ties to Mexico
play a crucial role in its economy.
For the sake of uniformity, we
define the border the same way
the Texas Comptroller of Public
Accounts did for the recent study
“Bordering the Future.”
1 The 43-
county region begins at the New
Mexico state line in Anthony and
runs through El Paso to San
Antonio along Interstate 10, then
down Interstate 37 to the north
side of Corpus Christi on the
Texas Gulf coast (Chart 1).
Strong job growth along the
border distinguishes the region from
other poor areas of the nation. For
example, from 1969 to 1997, an-
nual job growth was 2.6 percent
for the border overall and 3.4 per-
cent in poor border counties. In
contrast, employment grew 2.0 per-
cent, 0.4 percent and 0.3 percent
in the poorest regions in Kentucky,
West Virginia and Mississippi, re-
spectively (Chart 2). Compared with
Texas, these three states each had
a higher percentage of their popu-
lation living in poor counties.
2
But as border jobs have grown
strongly, incomes have generally
remained low. In 1997, per capita
personal income was $17,255 in the
border counties, $23,707 in Texas
and $25,288 in the United States. This
gap may be distorted by a couple
of factors: a relatively large non-
working-age population in the bor-
der region and unmeasured in-
come from cash-based business
transactions in this area. Less af-
fected by these factors, earnings per
job ranked the border closer to the
state and nation in 1997 at $25,457,
compared with $31,178 in Texas
and $30,842 in the United States.
Federal Reserve
Bank of Dallas
San Antonio
Branch
December 1999 South Texas
Economic Trends and Issues Vista
Border Region
Makes Progress
in the 1990s
Akey to future
income growth may be
a significant increase 
in public education
spending that began 
in the 1990s.By almost any measure the
border area is poor, but it is 
better off in some respects than
other poor areas. As shown in
Chart 3, the per capita personal
income in Kentucky, West Virginia
and Mississippi ranged from
$13,239 to $13,695, well below the
$17,255 in the Texas border re-
gion but higher than the $12,103
in the poor border counties. How-
ever, earnings per job in the poor
border counties were significantly
higher than in Kentucky, West Vir-
ginia and Mississippi.
Oddly, certain indicators that
usually accompany poverty are
missing in South Texas, even in
the poorest counties. Mortality
rates and infant death rates are
close to the national average and
much lower than in the poor
counties in Kentucky, West Virginia
and Mississippi. The border re-
gion’s high birth rates result in a
very young and growing popula-
tion. Only 52.8 percent of the
poor county population is over
age 25, compared with 63.7 per-
cent in the United States and
about 60 percent in other poor
regions we looked at. Typically,
one makes more money as one
gets older. Thus, with fewer peo-
ple in the prime of their working
lives, wages will be lower.
Another factor in determin-
ing border income levels is edu-
cation. Of the population over
the age of 25, 47.2 percent in poor
border counties have a high
school diploma. Only Kentucky’s
poor counties have lower gradu-
ation rates, and the national
average is a much higher 77.6
percent. On the other hand, col-
lege graduates make up 10.9
percent of the adult border pop-
ulation, compared with 9.5 per-
cent, 7 percent and 6.9 percent
in Mississippi, Kentucky and West
Virginia, respectively. The U.S. aver-
age, however, is 21.3 percent,
twice the border percentage.
The lack of education con-
tributes to lower wages along the
border. The comptroller’s study
reports that, for U.S.-born resi-
dents, the incomes of border
workers relative to all Texans are
higher for workers with at least a
high school education. For ex-
ample, the 1990 census showed
that for workers in the 45 to 64
age group, native-born border
workers without high school
diplomas earned 78.2 percent of
the state average income for the
same education level/age group,
while those with a high school
education earned 92.6 percent
and those with a bachelor’s de-
gree earned 85.3 percent. Also,
in 1993–94 the border unem-
ployment rate for workers with-
out a high school diploma was
11.5 percent, compared with 2.9
percent for college graduates.
1990s Bring Progress
The 1990s have been event-
ful for the border region. NAFTA
became effective in January 1994.
Chart 1
Texas Border Region
Poor border counties
Chart 2
Border Job Growth Stands Out Among Poor Counties
Annual job growth, 1969–97
0
.5
1
1.5
2
2.5
3
3.5
4
United States Texas Total Texas 
border
Texas
border*
Mississippi* West
Virginia*
Kentucky*
* Poor counties.
SOURCES: Bureau of Economic Analysis; authors’ calculations.A significant peso devaluation in
December 1994 was followed by
a sharp recession in Mexico in
1995. After increasing strongly 
in 1994, employment growth
slowed significantly in 1995. Job
growth rebounded in 1996 and
continued to pick up strength
until the second half of 1998,
when a steep decline in oil prices
hit the oil-dependent areas of the
border and caused some slowing
in the Mexican economy.
Overall, however, the 1990s
marked a period of progress for
the border economy. Gains in
state funding for public educa-
tion and increased funding for
Border Patrol and Customs cre-
ated many new high-paying jobs.
The maquiladora industry (mostly
foreign-owned industrial plants
on the Mexican side of the bor-
der) boomed, increasing demand
for retail and banking services on
the Texas side of the border. And
while NAFTA may have played a
role in the decline of apparel
manufacturing and other low-
skilled industries, transportation
and warehousing got a boost
from strong gains in trade.
The most recent income data
show that border earnings per job
rose at an average annual rate of
3.9 percent from 1990 through
1997, versus 3.5 percent in the
nation. During the 1980s, border
growth was slower than the na-
tion’s. As shown in Chart 4, aver-
age earnings growth varied from
a low of 3.5 percent for Browns-
ville to 5 percent for Laredo. No
border metro area grew more
slowly than the national average.
Job growth also has been
strong in the 1990s. From 1990
through 1997 annual job growth
averaged 2.8 percent for the
entire border region, versus 1.6
percent in the nation. Growth in
the metropolitan areas ranged
from 1.9 percent in El Paso to 5
percent in Laredo (Chart 4). In
1990 El Paso had a larger share
of employment in manufacturing
than any other border metropol-
itan area; hence, it has been hit
hard by losses in apparel manu-
facturing. Laredo, on the other
hand, has the largest share of
employment in transportation
services and has benefited from
being the biggest land port for
trade between Texas and Mexico.
Total shipments through the Port
of Laredo increased 89.5 per-
cent from 1994 to 1997 and, in
1997, were valued at about 
$50 billion—twice the amount
of goods traveling through El
Paso, the next largest land port.
Increased Focus on Education
3
The most important change
along the border in the 1990s may
be the least observed. Restruc-
tured funding methods beginning
in 1992 dramatically increased the
amount of money available to
border schools. By 1997, border
schools had seen their total reve-
nue increase by 57 percent, to
$5,269 per student—$134 more
than non-border districts and $103
more than the state average.
While the comptroller’s study
gives evidence that the funding
increase has already begun to
improve school performance, the
greatest effects will likely take
hold in decades to come.
Another important change in
the 1990s was the South Texas/
Border Initiative, approved by state
legislators in 1989. The initiative
provided additional funding for
Chart 3
Border Earnings Per Job Relatively Higher than Per Capita Personal Income
1997 earnings (thousands of dollars)
0
5
10
15
20
25
30
Total Texas border Texas border* Mississippi* West Virginia* Kentucky*
Earnings per job
Income per capita
* Poor counties.
SOURCES: Bureau of Economic Analysis; authors’ calculations.
Chart 4
Border Metropolitan Growth Strong in the 1990s
Annual percent change, 1989–97
0
1
2
3
4
5
6
San Antonio McAllen Laredo El Paso Corpus Christi Brownsville Texas United States
Employment
Earnings per job
Border
SOURCES: Bureau of Economic Analysis; authors’ calculations.Federal Reserve Bank of Dallas
P.O. Box 655906
Dallas, TX 75265-5906
ADDRESS SERVICE REQUESTED
BULK RATE
U.S. POSTAGE
PAID
DALLAS, TEXAS
PERMIT NO. 151
1990s. Earnings per job and the
number of jobs have increased at
a faster pace than the national
average, allowing this low-wage
region to make small relative
gains.
If Mexico continues to make
economic and political reforms,
banking and retail services that
border communities now pro-
vide to Mexican nationals may
be reduced. However, if the bor-
der population takes advantage
of a significant investment in
education that began in the
1990s, it can create its own eco-
nomic opportunities.
The border’s warm climate
and proximity to Mexico should
ensure a steady supply of work-
ers. Marked gains in the per-
centage of the workforce with
high school and college degrees
would attract employers, particu-
larly as the U.S. workforce ages.
Also, workers in the area will
likely start more of their own
businesses, capitalizing on their
education and their knowledge of
the language and culture of the
expanding Hispanic population
within Mexico and the United
States.
— Eric Dittmar
Keith Phillips
Notes
Eric Dittmar was a research assistant
at the Federal Reserve Bank’s San
Antonio Branch. Keith Phillips is a
senior economist at the San Antonio
Branch.
1 A copy of the comptroller’s study can
be obtained from the web site
http://www.window.state.tx.us/
border/border.html or by calling 
1-800-531-5441, ext. 3-4900.
2 We define poor counties as those
ranked among the lowest 250 counties
in the United States in per capita
personal income in 1997.
3 Most of the data in this section come
from the study cited in footnote 1.
border universities and author-
ized new academic programs and
courses. Lawmakers merged some
public border institutions with the
University of Texas and Texas
A&M University systems and up-
graded the status of five higher
education institutions.
From fiscal year 1990 through
fiscal 1996, state funding of bor-
der higher education increased
$87 million, a 69 percent gain. In
1996, South Texas institutions,
with 15.6 percent of the state’s
full-time students, received 15 per-
cent of the general revenue
funding for higher education. By
comparison, 1990 enrollment at
these universities accounted for
13.7 percent of college students
but only 11.1 percent of the
state’s higher education funds. As
with the increased funding of
public schools, most of the return
on the additional investment in
higher education will come in
future decades.
Summary and Conclusions
NAFTA’s implementation, a
mid-decade peso devaluation and
Mexican recession, and strength
in the Mexican maquiladora in-
dustry have left their mark on
the border region during the
For more information, contact Keith
Phillips at (210) 978-1409 or
e-mail keith.r.phillips@dal.frb.org.
For a copy of this publication, write
to Rachel Peña, San Antonio
Branch, Federal Reserve Bank of
Dallas, P.O. Box 1471, San Antonio,
TX 78295-1471.
The views expressed are those of
the authors and do not necessarily
reflect the positions of the Federal
Reserve Bank of Dallas or the
Federal Reserve System.
Editor: Keith Phillips
Copy Editor: Jennifer Afflerbach
Design: Gene Autry
Layout & Production: Laura J. Bell
This publication is available on the
Internet at www.dallasfed.org.
V

Border region makes progress in the 1990s

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Border region makes progress in the 1990s

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