The Economics of Maquiladoras

The early opening of Mexico’s economy under the North American Free Trade Agreement (NAFTA) widely encouraged foreign investment in the maquiladora industry. Organized shortly before the Border Industrialization Program (BIP) in 1965, maquiladoras are foreign-owned transnational assembly plants that operate mostly tariff-free at the northern Mexican border. Per the free-trade zone established by NAFTA, maquiladoras incur a value-added tax when re-exporting the final goods to the United States. A value-added tax is a duty on the value of the finished product minus the total cost of the parts that had been imported to make it. Economists refer to this model as an export processing zone (EPZ).

EPZs are areas that offer incentives and eliminate trade barriers to stimulate economic growth by appealing to foreign investors for export-oriented production. Benefits of the EPZ model to developing countries tend to include the increase in foreign exchange, job creation, and the introduction of technology. Nonetheless, there has been some concern among economists about the quality of the development stimulated by EPZs. Work experiences in EPZs often correlate with low wages, high work intensity, unsafe working conditions, and the suppression of labor rights.

Per the BIP’s objectives, Mexican legislation promoted an export-oriented economy as a strategy to recover the jobs lost following the dissolution of the Bracero program, which until 1964 had permitted Mexican males to migrate to the United States to work temporarily in agriculture. To capture investment from the foreign market and establish a comparative advantage, maquiladoras paid lower wages than firms serving Mexico’s domestic market. Four considerations allowed maquiladoras to achieve this: feminizing the labor force; highly segmenting the skill categories with the majority of work in low-skilled jobs; lowering real wages; introducing a non-union orientation.

For the most part, management in maquiladoras assumed that men would not have accepted lower wages and preferred to hire young, unmarried women instead. General trends have found that women in the maquiladora industry continue to have little or no previous work experience and often migrate from supporting agricultural regions. While their labor participation has been decreasing with the industry’s purchase of technology substitutes, maquiladoras continue to hold a majority female workforce. Observations have also found that labor discipline is enforced with the use of gender roles and directs to the hiring of male floor managers to supervise female workers as a consistent strategy.

Most recently, Mexico’s federal government has attempted to connect current asylum seekers who are waiting in northern Mexico’s border cities with employment opportunities in maquiladoras. These efforts have drawn criticism from scholars who have suggested that President Trump’s immigration policies and the militarization of the U.S.-Mexico border have become integral to maintaining northern Mexico’s low-wage labor force.

About Alessandra

Alessandra is a second-year student double majoring in Economics and Environmental Policy & Decision Making with a minor in Politics & Government. She graphs economic models and curves with crayons.

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