Monday, February 18, 2008

Afta NAFTA

Barack Obama just received the endorsement of the Service Employees International Union. They represent almost 2 million voters.

In a speech aimed at labor, Obama said Hillary Clinton "supporting NAFTA didn't give jobs to the American people."

Let's look at the numbers. NAFTA took effect in 1994. The unemployment rate in the three years before was 6.8%, 7.5% and 6.9%. While it had been as low as 5.3% in 1989, in general, it was normal for unemployment to be above 6% and often above 7% in the fourteen years before NAFTA.

Here are the year by year rates through the rest of the Clinton administration: 6.1%, 5.6%, 5.4%, 4.9%, 4.5%, 4.2%, 4.0%. Next we have the "worst since Hoover" Bush recession, and the unemployment rate rises to 4.7%, 5.8% and 6.0%, then back down to 5.5%, 5.1%, 4.6% and 4.6%.

In other words, after NAFTA, unemployment drops precipitously and stays down. It's impossible to know how much effect NAFTA had, though it sure does seem likely it led to a net gain in jobs. At the very least, it's hard to claim it led to a net loss.

Does Obama know this? My guess is yes. But he also knows what people want to hear.

PS We've been linked before, but never Instalinked. Hello, everyone. You know what they always says--"look around the rest of the blog"--so why should I be any different?

18 Comments:

Anonymous Anonymous said...

Why do you move jobs from the USA to Mexico or China or India?
Lower costs is a big factor.

Costs of direct labor, health care, taxes, regulations etc.

Other factors might include better weather, closer transportation etc.

When this happens someone is out of work here and someone gets a job there.

Overall this is the good and proper action of a marketplace.

However, to say that NAFTA caused total jobs to increase or decrease is probably not direct cause and effect so much as what the overall economy is doing.

On the level of the individual worker their view depends on whether the next job they get pays as well, better or worse than the one they lost.

In general, if jobs are moving the "high level folks" move down and the "low level folks" do better.

But due to other factors such as improvements in products, health care etc. ALL folks may be better off than they were 10 years before.

7:00 AM, February 18, 2008  
Anonymous Anonymous said...

The bigger question is not what does Obama know, but why doesn't his audience know these numbers?

7:49 AM, February 18, 2008  
Blogger acogbill said...

I do not dispute your numbers. However, it might be more interesting to examine the total wages tken in by American employees during the same time period. The usual argument against NAFTA is that while unemployment has decreased, implying more jobs, wages have been depressed, so people are not better off.

The issue is complicated by the huge influx of labor from, mostly, Mexico, which emphatically tends to decrease overall wages.

7:59 AM, February 18, 2008  
Blogger LAGuy said...

Thanks for you comments. acogbill.

Whether you think NAFTA helped or not, the way some people talk about it, you'd figure we had a sudden job drop after it passed, when the opposite is true. Ross Perot spoke for many when he predicted there'd be a "giant sucking sound" of jobs going south of the border. Well, some might have gone that way, but apparently more came north.

8:06 AM, February 18, 2008  
Anonymous Anonymous said...

Forgetting about the dotcom boom/bust,
while looking at these numbers leaves out another big factor of the times.

Also need to consider the effects of the recent real estate bubble & bust, another phony boom with no "legs."

Now.. what is the fall of the dollar going to do? Help us or hurt us?

8:13 AM, February 18, 2008  
Anonymous Anonymous said...

We should put a cap on how much energy companies can use. This will help lots.

8:39 AM, February 18, 2008  
Anonymous Lonni said...

As a Canadian, I should point out that NAFTA is getting negative treatment here from time to time. With the border closing to beef (understandable with Mad Cow) and the tariffs on Softwood Lumber, Canadians are questioning exactly how "Free" the free trade in NAFTA is. There is a growing movement to nationalize the oil sector in Canada (well, growing outside of Alberta, to grab Alberta's oil), and a growing fear that the USA will use NAFTA to sieze our water resource. The nationalization of the oil sector is difficult for a variety of reasons, a big one being NAFTA (another being that in Canada natural resources are a provincial juristiction - one writer had the gall to suggest the Federal Government ceded the juristiction to the provinces, when in reality Alberta took the Feds to court and defended the jurstiction). Now with a thirsty USA beginning to look North, Canadians are wondering how long before Washington uses NAFTA to trigger water under NAFTA as well. The USA had better be careful with bashing NAFTA, as it is viewed here that the USA uses NAFTA when it wants to, and ignores it when it is inconvienent. Canada may remove itself from NAFTA, and the secure hydrocarbon trade may be in limbo (there are plans to build more pipeline to the West Coast to sell to Asia), and water will become a huge and very serious issue.

NAFTA is a great treaty, but Canadians are questioning the sincerity the USA has towards it. There is already a significant movement to diversify our trade, and that can not be good for the USA.

BTW, "here" is Calgary, Alberta.

8:58 AM, February 18, 2008  
Anonymous Anonymous said...

One important factor missing from the unemployment percentages is those who have exhausted their unemployment benefits and are still unemployed. They are never added to this percentage.

8:59 AM, February 18, 2008  
Blogger karrde said...

anonymous says: One important factor missing from the unemployment percentages is those who have exhausted their unemployment benefits and are still unemployed. They are never added to this percentage.

The United States Department of Labor's Bureau of Labor Statistics disagrees with you.

They've been using a process called Statistical Extrapolation to produce unemployment data. The current method was introduced during the 1940's, and has been refined since that time by Bureau of Labor Statistics employees.

The nuts and bolts for those not willing to wade through the linked documents:

The BLS takes a monthly survey of a representative sample of households nationwide. They use the survey to get a measure of how many employable workers are employed. (Adjustments for seasonal changes in employment are also put in place after the data is gathered.)

Changes to the questionnaire have occurred (in '94 and '03) which affect the data, but they don't appear to make comparison across those boundaries useless.

A funny, but unrelated note--when I was in grad school, the Dept. of Labor was the largest advertiser for statistics students doing summer internships.

I was doing abstract algebra, not statistics, so I didn't even look twice. But I knew that statisticians were in high demand at the Dept. of Labor.

9:31 AM, February 18, 2008  
Anonymous Anonymous said...

"Why do you move jobs from the USA to Mexico or China or India?
Lower costs is a big factor.

Costs of direct labor, health care, taxes, regulations etc.

Other factors might include better weather, closer transportation etc."

Another factor might well be that the non-US labor force is doing a better job than some of the slackwit goofballs we have here.

10:15 AM, February 18, 2008  
Anonymous Anonymous said...

Tell the 1000 Hershey Chocolate employees here in Pennsylvania who are losing their jobs to Mexico that NAFTA is a good agreement.

10:39 AM, February 18, 2008  
Blogger LAGuy said...

I was waiting for this sort of argument. Tell you what, I'll talk to the Hershey people if you talk to the millions who have gotten jobs since NAFTA passed.

10:41 AM, February 18, 2008  
Blogger Joe said...

One very important factor oft ignored when discussing outsourcing/offshoring of jobs is the erroneous presumption that those jobs wouldn't have be lost regardless.

3:35 PM, February 18, 2008  
Anonymous Anonymous said...

What effect might the changes in "Welfare as we know it" have in moving the percentages? People will work when they can no longer feed off the system.

7:20 PM, February 18, 2008  
Blogger QueensGuy said...

Outsourcing is a dirty word in current political dialogue, solely because of a lack of understanding of basic microeconomics. Stephen Landsburg has a good piece in his book "More Sex Is Safer Sex" about how outsourcing should be thought of as equivalent to technological innovation. I.e. if the transfer of 1000 hershey jobs to Mexico results in a $.70 candybar instead of a $.75 candybar, or the invention of a new machine that replaces 1000 hershey jobs results in the same price change, why should I care which one happened, unless I work for hershey?

9:36 AM, February 20, 2008  
Anonymous denver guy said...

NPR did a story a few weeks ago about a textile factory (shoes I think) closing in a small North Carolina town. It had your typical pathos, with the 55 year old woman who had worked there 40 years and didn't know what she would do now. What I found interesting was a few days later, during the weekly "letters to the editor" segment, there was a response from one listener who noted that while she felt sorry for the displaced NC workers, she couldn;t help feeling a bit of glum satisfaction, since she recalled some 50 years earlier when the shoe factory in her New England town closed because a new factory was being opened in - North Carolina.

2:49 PM, February 20, 2008  
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