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E l

P a s o

BusinessFrontier
FEDERAL RESERVE BANK OF DALLAS

U.S.–Mexico Trade:
Are We Still
Connected?

INSIDE:
Why Is El Paso’s
Job Market
So Sluggish?

EL PASO BRANCH

ISSUE 3 • 2004

Tsharply
rade between the United States and Mexico slowed
between 2001 and 2003, primarily because of
slower growth in both countries. During this period,
gross domestic product (GDP) growth fell to 1.6 percent per year on average in the United States and 0.6
percent in Mexico. Consequently, U.S. exports to Mexico fell 4.4 percent on average per year for 2001–03.
U.S. imports of goods and services from Mexico grew
only 0.6 percent on average per year over the same
period.
Currently, with both countries again growing
strongly, U.S.–Mexico trade seems to be back on track,
rising at an annual rate of 13.5 percent since January.
This article looks at how trade between the United
States and Mexico has increased synchronization of the
two economies, examines both countries’ trade by
industry and explores how enhanced trade between
these countries affects border economic growth.

ECONOMIC SYNCHRONIZATION
THROUGH TRADE
Inter-industry trade refers to countries exporting
and importing the products of different industries
based on comparative advantage provided by their
national characteristics or initial endowments. This is
the standard concept of trade taught in every elementary economics textbook, describing how opening
trade between two countries unequivocally enhances
the welfare of both.
Three important results follow from this theory of
inter-industry trade. First, after trade opens, a country
will export goods that are relatively intensive in abundant domestic factors. The United States will export
technology because of its relative abundance of skilled
labor or wheat because of its farmland. It will import
goods like textiles or apparel that are intensive in
scarce, low-wage labor. Second, trade benefits the

This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org)

abundant factors (skilled labor, farmers) and hurts
the scarce factor (low-wage labor). The country as
a whole gains, but there are well-defined losers.
Third, export industries expand while industries
competing with imports contract, perhaps causing
extensive unemployment and long-term readjustment.
There is another form of trade, however, that is
not based on the competition between scarce and
abundant factors. Intra-industry trade occurs within
industries and even between countries making the
same good and using similar factors of production.1 This trade can arise because goods are similar but not identical—Japanese car manufacturers
are known for quality, U.S. automakers for innovations like the minivan and sport utility vehicle.
Opening intra-industry trade can spread fixed cost
across countries as one or the other develops a
cost advantage. Unlike inter-industry trade, where
there are well-defined and broad classes of winners
and losers, intra-industry trade does not carry implications of massive readjustment across industries.
Innovations can arise anywhere, and the location of
fixed factors may simply be an accident of history.2
Although opening trade implies new linkages
between countries, there is no consensus about
whether increased trade leads to more or less correlation of business cycles across trading partners.
However, recent empirical research suggests that
if the integration of trading-partner economies is
the result of growing intra-industry versus interindustry trade, business cycles will become more
positively correlated.3 The experience of the European Union and other economically integrated
regions shows that the structural-adjustment
processes induced by trade liberalization are less
disruptive if the adjustment follows intra- rather
than inter-industry patterns.4
Chart 1

U.S. and Mexico Get Synchronized
(Coincident indexes of economic activity)
Index, July 1992 = 100

Index, July 1992 = 100
180
160

120
United States

110
100

140

90
120
80
100
Mexico
80

40
’80 ’82 ’84 ’86 ’88 ’90 ’92 ’94 ’96 ’98 ’00 ’02 ’04

SOURCE: Federal Reserve Bank of Dallas.

Maquiladora-led U.S.–Mexico trade is primarily
intra-industry trade. Most industries experienced
large increases in intra-industry trade over the first
five years of the North American Free Trade
Agreement (NAFTA).5 From 1993 to 2003,
U.S.–Mexico total trade increased 189 percent,
from $81.4 billion to $235.5 billion. About 80 percent of U.S. trade with Mexico is intra-industry, a
fact that may have played a role in the countries’
increased economic synchronization, especially
after NAFTA took effect in 1994 (Chart 1). From
1980 to 1993, the correlation coefficient between
the coincident indexes of economic activity in the
United States and Mexico was 0.73. The same correlation coefficient increased to 0.96 between
1993 and 2004. More formal studies by Mexico’s
central bank provide evidence that production
linkages between Mexico and the U.S. manufacturing sectors strengthened after NAFTA’s enactment, and as a consequence, business cycles in
these countries became more synchronized.6

WHAT ARE MEXICO AND THE
UNITED STATES TRADING?
Table 1 lists the 15 largest U.S. exports to
Mexico plus the top 15 U.S. imports from Mexico
in 2003. Eleven categories appear on both lists,
indicating extensive intra-industry trade. Computer
and electronic products, for example, were the
top U.S. export to Mexico and also the secondlargest import from Mexico. Transportation equipment was the second largest U.S. export to
Mexico but also the top U.S. import from Mexico.
This two-way exchange implies each country is
sending the other the same product, just at different stages of production. In the computer and
electronic products category, the United States
may send Mexico chips and software, while Mexico sends assembled computers back to the
United States—an example of U.S.–Mexico trade
through the maquiladora industry.
Originally, maquiladora plants were allowed
to temporarily import duty-free supplies, parts,
machinery and equipment necessary to produce
goods and services in Mexico, as long as the output was exported back to the United States. The
United States, in turn, taxed only the value-added
portion of the manufactured product. The top
three maquiladora sectors—transportation equipment, electronics, and textiles and apparel—together
compose 75 percent of total maquiladora employment and are well represented in our list of 15
leading goods traded between the two countries.
Table 2 shows U.S. exports to Mexico for the
10 leading exporting states in 2003. Texas is the
most important exporter to Mexico, with almost
43 percent of the total ($41.6 billion), followed by
Business Frontier

Table 1

U.S. Trade with Mexico, 2003
(Billions of U.S. dollars)
NAICS
Rank code Product
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15

334
336
325
333
335
326
311
332
111
331
313
322
324
339
315

Exports

Computer and electronic products
Transportation equipment
Chemicals
Machinery, except electrical
Electrical equipment, appliances, and component
Plastics and rubber products
Food manufacturing
Fabricated metal products, NESOI
Agricultural products
Primary metal manufacturing
Textiles and fabrics
Paper
Petroleum and coal products
Miscellaneous manufactured commodities
Apparel and accessories
Subtotal:
All other:
Total

NAICS
Amount Rank code Product
21.533
12.356
9.175
8.511
6.184
4.826
4.165
4.041
3.586
2.854
2.718
2.701
2.323
2.269
1.656
88.898
8.559
97.457

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15

336
334
211
335
315
333
332
339
111
325
331
312
316
327
311

Imports

Amount

Transportation equipment
35.458
Computer and electronic products
29.557
Oil and gas
14.439
Electrical equipment, appliances, and component 10.997
Apparel and accessories
7.177
Machinery, except electrical
5.642
Fabricated metal products, NESOI
3.710
Miscellaneous manufactured commodities
3.567
Agricultural products
2.972
Chemicals
2.370
Primary metal manufacturing
2.342
Beverages and tobacco products
1.747
Leather and allied products
1.721
Nonmetallic mineral products
1.673
Food manufacturing
1.394
Subtotal:
124.766
All other:
13.306
Total
138.072

SOURCE: U.S. International Trade Commission.

California at 15 percent ($14.9 billion) and Michigan with 4.1 percent ($4 billion). Texas’ leading
exports are computer and electronic products,
transportation equipment and chemicals. California exports computer and electronic products,
machinery, and plastics and rubber products,
while Michigan mainly exports transportation
equipment, computer and electronic products,
and chemicals.

TRADE AT THE BORDER
In 2003, trade through land ports along the
U.S.–Mexico border represented about 83 percent
of the trade between the countries. Together, the
top 10 ports of entry account for 98 percent of
trade passing through the border (Table 3 ). Laredo
was by far the leader with a 40.5 percent share, or
$79 billion in cargoes. Second-place El Paso had
about half the exports of Laredo, at $40 billion, or
20.2 percent. With $152 billion in land trade with
Mexico, Texas surpassed other states by far: California ($30 billion), Arizona ($12 billion) and New
Mexico ($1.1 billion). Growth in U.S.–Mexico
trade in the 1990s, as well as the increased economic interdependence along the border, is easily
explained by the stellar performance of the
maquiladora industry during the decade. For instance, Mexico’s total maquiladora trade reached
$136 billion in 2003, or about 41 percent of the
country’s total trade. This figure was up fivefold
from 1990, when it was only $24 billion.
Issue 3 • 2004

The positive impact of maquiladora growth for
the U.S. side of the border has two main sources:
(1) the spillovers from maquiladora-associated
income growth in neighboring Mexican cities,
such as retail sales, and (2) the shift of many U.S.
maquiladora suppliers to border cities from their
traditional base in the Midwest.7 In recent years,
we have seen how rising real wages in Mexico
and foreign competition have reduced the
prospects for maquiladora growth in some sectors, and now we are seeing foreign competition
make inroads into the maquiladora supply chain.
This raises the possibility of slowing, or even
Table 2

U.S. Exports to Mexico by Top 10 States, 2003
(Billions of U.S. dollars)
State

1
2
3
4
5
6
7
8
9
10

All United States
Texas
California
Michigan
Arizona
Illinois
Indiana
Ohio
Florida
Louisiana
New York

Total exports
97.457
41.561
14.872
4.006
3.229
2.153
2.105
2.102
1.814
1.776
1.705

SOURCE: World Institute for Strategic Economic Research.

reversing, the growth of U.S. border-city suppliers
to the maquiladora industry.
Throughout the 1990s, the vast majority of
imported inputs to the maquiladora industry came
from the United States. In 2000, 90 percent of
maquiladora inputs were from the United States
and 9 percent were from Asia, with China contributing only 1 percent (Chart 2). By 2003, 69
percent came from the United States and 28 percent from Asia, including 8 percent from China.
The United States remains the majority supplier,
but this rapidly moving trend continued to run in
favor of Asia into 2004.
It may be that U.S.-based suppliers are simply
being replaced by global competitors, mainly
from Asia. Alternatively, perhaps U.S.-based suppliers are having their inputs partially or completely produced in Asia to take advantage of
cheaper labor, then sent to Mexico for final assembly in the maquiladoras. Either way, maquiladora
imports from the United States have fallen, even
though Mexico’s maquiladora exports remain
almost completely (98 percent) destined for U.S.
consumption.
Unfortunately, data are not available on
exactly which inputs are being displaced, making
it difficult to assess the impact on Texas border
communities. Did production move to the border
in the 1990s because the inputs being produced
were time-sensitive, making it hard for Asian firms
to compete? Or are Texas suppliers, like more distant suppliers in the Midwest, seeing a rapid production shift to Asia?
Recent research suggests it is still too early to
write off the established supplier networks on the
border, in spite of rising wages in Mexico. Competitive advantages continue in sectors that place
a premium on proximity to both markets and supChart 2

U.S. Suppliers Losing Market Share in Mexico
Percent

100
90
80

2000

2001
2002

2003
2004

Table 3

U.S.–Mexico Trade by Top 10 Land Ports, 2003
(Billions of U.S. dollars)
1
2
3
4
5
6
7
8
9
10

City

Laredo, TX
El Paso, TX
Otay Mesa – San Ysidro, CA
Hidalgo, TX
Nogales, AZ
Brownsville – Cameron, TX
Calexico, CA
Eagle Pass, TX
Del Rio, TX
Santa Teresa, NM
Total for 10 ports of entry

Total trade
78.812
39.334
19.747
14.432
10.356
10.147
8.898
5.739
2.772
1.089

191.326

SOURCE: Texas Center for Border Economic and Enterprise Development, Texas A&M International University.

plier networks.8 More specifically, the established
competitive supplier networks of the border
maquiladoras, and the developed border infrastructure that links the maquiladoras to the large
U.S. market, can offset the initial disadvantages of
higher labor costs and a leveling of tariff policies.
With a continued strong presence of cross-border
interdependence, the border region can remain
the pioneer and leader with respect to manufacturing processes.

SUMMARY
U.S.–Mexico trade is growing again at rates
experienced before the recent economic slowdown. In addition, the top products traded by
these countries have not changed, implying that
trade expansion may have a less disruptive effect
in both countries as a result of the intra-industry
nature of their trade relationship. This relationship
may also be a key factor in the economic synchronization of the U.S. and Mexican business
cycles. Recent data suggest that U.S. suppliers to
the Mexican maquiladora industry are rapidly
being replaced by global competitors, mainly
from Asia. Data are not available to specifically
assess this trend’s impact on Texas suppliers, but
research suggests that proximity and infrastructure
remain significant assets for maquiladora suppliers
located in Texas border cities.
— Jesus Cañas
Roberto Coronado

40
30
20
10
0
United States

Asia

China

Other

NOTES: 2004 data are for January through April; Asia excludes China.
SOURCES: Banco de México; authors’ calculations.

Cañas and Coronado are assistant economists at
the El Paso Branch of the Federal Reserve Bank of
Dallas.
(continued on back page)
Business Frontier

considered. And others may find new opportunity
in the general economic housecleaning that a
recession brings. One study found that the oil bust
in Texas and Louisiana cities led to a quick surge
in the number of proprietors, but that it took several years for a large increase in proprietors’
income to follow.5 Recessions are also sometimes
compared to forest fires, leaving the seeds of economic regeneration on the forest floor after they
pass. These proprietorships may well be the seeds
of future growth.

U.S.–Mexico Trade: Are We Still Connected?
(continued from page 4)

NOTES
1

CONCLUSION
Despite the controversy at the national level
over which employment series to follow, we could
find little evidence that the more optimistic, less
watched household series really offers trustworthy
news about additional job growth in El Paso and
surrounding cities. The exception is perhaps in new
proprietorships, where the self-employed added
from 0.5 percent to 1 percent to total employment
in the first year of economic recovery.
Even if this proprietor job growth carried over
into 2003 and 2004, adding a percentage point to
growth in El Paso or Texas or the United States,
the numbers remain disappointing. The primary
factors still shaping job growth at present are the
short-run, job-depressing effects of productivity,
along with some structural readjustments to the
1990s tech boom and bust. We are still waiting for
the long-term, job-growing benefits of higher productivity growth that seem sure to follow.

—Robert W. Gilmer

The seminal work on this subject is Intra-Industry Trade: The
Theory and Measurement of International Trade in Differentiated Products, by H. G. Grubel and P. J. Lloyd, New York:
John Wiley, 1975.
For an introduction to the subject, see “The Nature and Significance of Intra-Industry Trade,” by Roy J. Ruffin, Federal
Reserve Bank of Dallas Economic and Financial Review,
Fourth Quarter 1999, pp. 2 – 9.
“The Endogeneity of the Optimum Currency Area Criteria,”
by Jeffrey Frankel and Andrew Rose, Economic Journal, vol.
108, July 1998, pp. 1009–25.
“Intra-Industry Trade: Current Perspectives and Unresolved
Issues,” by David Greenaway and Chris Milner, Weltwirtschaftliches Archiv, vol. 123, no. 1, 1987, pp. 39 – 57.
“Intra-Industry Trade Between the United Sates and Mexico:
1993–1998,” by Don P. Clark, Thomas M. Fullerton Jr. and
Duane Burdorf, Estudios Económicos, El Colegio de México,
vol. 16, no. 2, 2001, pp. 167–83.
See “Bilateral Trade and Business Cycle Synchronization: Evidence from Mexico and United States Manufacturing Industries,” by Daniel Chiquiar and Manuel Ramos-Francia, Working Paper no. 2004-05, Dirección General de Investigación
Económica, Banco de México, October 2004. Also see “La
Relación de Largo Plazo del PIB Mexicano y de sus Componentes con la Actividad Económica en los Estados Unidos y
con el Tipo de Cambio Real,” by Daniel G. Garcés Díaz, Documento de Investigación no. 2003-4, Dirección General de
Investigación Económica, Banco de México, marzo de 2003.
See “El empleo en la frontera de Texas y el crecimiento de
las maquiladoras,” by Jesus Cañas, Roberto Coronado and
Robert W. Gilmer, Acontecimientos Recientes sobre Desarrollo
Económico Fronterizo, Colegio de la Frontera Norte, forthcoming.
See “Maquila Sunrise or Sunset? Evolutions of Regional Production Advantages,” by Stephan Weiler and Becky Zerlentes, Social Science Journal, vol. 40, no. 2, 2003, pp. 283 – 97.

Gilmer is a vice president and senior economist at
the Federal Reserve Bank of Dallas.

NOTES
1

The December 2004 issue of Houston Business, published by
the Federal Reserve Bank of Dallas, contains a similar but
more detailed analysis of the same problem for Houston and
other Texas Triangle cities.
For a summary of the controversy, including a number of
issues not touched on in this article, see “Employment from
the BLS household and payroll surveys: summary of recent
trends,” on the BLS web site at www.bls.gov/cps/ces_cps_
trends.pdf.
“Examining the Discrepancy in Employment Growth
Between the CPS and CES,” by Mary Bowler, Katie Kirkland,
Jurgen Kropf, Thomas Nardone and Signe Wetrogan, a paper
prepared for the Federal Economics Statistics Advisory Committee, Washington, D.C., October 17, 2003.
The total number of proprietors is taken from Schedule C of
IRS Form 1040 on gains and losses from business, and a partnership count from Form 1065, U.S. Partners Return of
Income. Limited partnerships for oil and gas and real estate
are handled separately.
See “Finding New Ways to Grow: Recovery in the Oil Patch,”
by R. W. Gilmer, Houston Business, July 1996.

E l

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BusinessFrontier
ISSUE 3 • 2004
Business Frontier is published by the El Paso Branch of the
Federal Reserve Bank of Dallas. The views expressed are those
of the author and do not necessarily reflect the positions of the
Federal Reserve Bank of Dallas or the Federal Reserve System.
Subscriptions are available free of charge. Please direct
requests for subscriptions, back issues and address changes to
the Public Affairs Department, El Paso Branch, Federal Reserve
Bank of Dallas, 301 E. Main St., El Paso, TX 79901-1326;
call 915-521-8235; fax 915-521-8228; or subscribe via the
Internet at www.dallasfed.org.
Articles may be reprinted on the condition that the source is
credited and a copy of the publication containing the reprinted
material is provided to the Research Department, El Paso
Branch, Federal Reserve Bank of Dallas.

Why Is El Paso’s Job Market So Sluggish?
O
ver the past eight quarters, the U.S. economy
has nearly equaled its performance during the
best years of the 1990s tech boom, with average
gross domestic product (GDP) growth of 3.7 percent. However, between the last peak in economic activity in March 2001 and September 2004,
the U.S. economy added barely a quarter million
new wage and salary jobs, a number that would
have been typical of one month’s job growth in
the late 1990s.
Every indication is that El Paso’s economy is
following the national lead. The El Paso index of
coincident economic activity is up 2.6 percent
over the past 12 months, and the city finds itself
surrounded by rapid growth. For the last 12
months of data available, U.S. industrial production is up 5.1 percent, Mexican GDP is up 4.4 percent, Mexican industrial production has risen 5.5
percent, and there are 7.7 percent more maquiladora jobs. But with all this good news, local
employment has expanded only 1.1 percent over
the past year.
This article focuses on job growth in the
United States and El Paso.1 It is about the reasons
for slow growth, the various ways we measure
employment and the different stories these measures tell right now. The month after month of
bad news on job growth has been primarily delivered by the establishment survey of wage and
salary employees, while other measures indicate
faster growth. Could these other measures mean
that El Paso and the cities of the Desert Southwest
are really doing better than we think?

WHERE IS THE JOB GROWTH?
How could U.S. job growth come to a virtual
standstill for the past two years in the midst of
strong expansion in output? The answer seems to
be a surge in productivity growth, best explained
by a simple identity between output (O), employment (E) and productivity, or output per worker
(O/E):
O = E × (O/E)
In terms of growth rates, this becomes additive:
Growth rate of output = growth rate of
employment + growth rate of productivity.
Over the past eight quarters, U.S. GDP growth
has averaged 3.7 percent, and productivity has
surged at a 4.1 percent annual rate. A little arithmetic indicates this leaves room for job growth of
–0.4 percent.
Issue 3 • 2004

To most economists, a surge in productivity is
hardly a bad thing. In the short run it may be a job
killer, but at the same time it lowers the cost of
production, allowing for some combination of
higher producer profits, higher employee wages
and lower consumer prices. All of these argue for
an eventual strengthening of demand for product
and workers, following on the heels of stronger
investment and consumption. In other words,
while productivity kills jobs in the short run, it
should generate many more jobs in the long run.
Explanations of why we have waited so long
for the long-term gains to arrive vary: Round after
round of uncertainty, from 9/11 to accounting
scandals to Iraq, has postponed investment; structural change is only slowly moving workers out of
declining industries; or the tight and overheated
1990s labor market may have overshot equilibrium and is just now adjusting back to normal.
Whatever the reason, we have lived with the
short-run, job-killing features of productivity for
over two years, waiting for the long-term benefits
to arrive.
El Paso should not be immune to these gains
in productivity. Its economy remains closely tied
to manufacturing, a sector that has led the U.S.
economy in productivity gains over the past 25
years, and the competitive pressures of the global
economy dictate that you adopt the best technology or close your doors. As indicated above, just
as in the rest of the United States, there is every
indication that El Paso is experiencing rapid production growth accompanied by a sluggish job
market.

ESTABLISHMENT VERSUS HOUSEHOLD
EMPLOYMENT MEASURES
Controversy has recently surrounded two
alternative measures of employment level (and,
hence, job growth) produced each month by the
Bureau of Labor Statistics (BLS).2 The two surveys
are produced for different reasons and measure
different concepts, but comparisons between the
two are inevitable. Comparisons are all the more
likely to be drawn in a political season when one
is indicating significant job growth and the other
is not. Table 1 shows job growth between the
March 2001 economic peak and September of this
year. The more widely watched and cited establishment survey indicates little growth, while the
household survey points to significantly more
jobs—a difference of 1.7 million in the United
5

Table 1

workers absent from the job
without pay. There is no
Job Growth in El Paso and Other Metropolitan Areas in the Desert Southwest
direct way to benchmark
According to Two Measures of Employment, March 2001–September 2004
the survey to administrative
totals, but annual re-estimates
Household
Establishment
are produced along with new
16,420
2,200
El Paso
population estimates.
Albuquerque
6,709
10,200
Perhaps one place to
Las Cruces
7,018
5,900
look for a discrepancy is the
Lubbock
4,481
–200
broader coverage of the
Midland– Odessa
10,082
3,800
household sector. More than
San Angelo
2,944
700
a million agricultural workers
New Mexico
46,272
43,500
and 9 million self-employed
Texas
529,226
– 64,000
Texas Triangle Cities
184,751
– 109,800
are not in the establishment
United States
1,986,000
249,000
survey. Or perhaps methodological differences hold the
NOTES: Based on 1999 MSA definitions. Texas Triangle metros are Austin, Dallas, Fort Worth, Houston and
San Antonio.
answer. The household surSOURCES: Bureau of Labor Statistics; author’s calculations.
vey counts workers based
only on their primary emStates, almost a half million in Texas and more
ployment, while the establishment survey counts
than 14,000 in El Paso. Albuquerque is the only
the number of jobs, allowing multiple-job holding.
exception to faster growth in the household surUnfortunately, a careful accounting of these difvey, but overall there is no question that the two
ferences doesn’t seem to take us far.
series seem to have a different story to tell, espeThis is not the first time these two series have
diverged for a long period. Between 1994 and
cially in Texas.
2000, the two series moved apart by more than 5.3
If the comparisons in Table 1 point to higher
million in terms of indicated job growth, but in
growth in the household survey, surely there
opposite directions from today, with the establishshould be some story about a dark corner of the
ment survey indicating faster growth. Sophistijob market captured by the household measure but
cated efforts to resolve this 1990s difference are
neglected by the establishment survey—new businot encouraging. After all the definitional and covness formation, multiple-job holders or proprietorerage differences discussed above were considships, for example. Unfortunately, the more you try
to pin down the differences between these series,
ered (along with a number of others), only 21.5
the less sure you can be of how to interpret them.
percent of the difference in estimated growth
The Current Employment Statistics survey, or
could be accounted for.3
Referring back to Table 1, the current controestablishment survey, is based on administrative
versy over job growth may be a proverbial rabbit
records kept for the national unemployment insurtrail. As much as the alternative household
ance program. It provides a monthly estimate of
employment data seem to better correspond to
the number of private sector and government
the strong growth around us, there are no firm
employees covered by unemployment insurance,
methodological grounds to explain it. The last two
based on a monthly sample of over 400,000 work
times these surveys diverged widely (although in
sites and about one-third of all nonfarm workers.
opposite directions), the data currently in hand
Annually, accurate totals of the number of nonwould allow us to explain only 21 percent of the
farm wage and salary workers can be obtained
gap in growth. There is no reason to think it is diffrom administrative records, ensuring that recent
ferent now, and we are simply left with an unsatsample values can be corrected to actual values
isfying statistical mystery.
and continuing sample values are linked to a solid
anchor in the recent past.
PROPRIETORS AND PARTNERSHIPS
The Current Population Survey, or household
The side-by-side comparison of the household
survey, is based on a monthly sample of 60,000
and employment survey yielded one clue that
households interviewed in person or by telephone. The universe measured here is much
something interesting might be happening outside
broader than wage and salary jobs; it includes all
the scope of the nonfarm wage and salary survey
civilian noninstitutional population age 16 and
since March 2001—the addition of 434,000 proover. Unlike the establishment survey, it counts
prietors in the household survey by September of
the self-employed (proprietors and partners), agrithis year. The Census Bureau defines a proprietor
cultural workers, unpaid family members and
as a person who works for profit or fees in his
6

Business Frontier

or her own unincorporated business, profession
or trade, or who operates a farm. To learn about
proprietors at the local level, the best place to
look is the Regional Economic Information System
(REIS), produced by the Bureau of Economic
Analysis (BEA). It is not comparable to the two
employment surveys examined already, in that it
is designed to provide data on employment and
income in great geographic detail, is only produced annually (not monthly), and the latest
year’s data are only made available with a lag of
about 18 months.
The REIS employment data appear in two
series: a wage and salary series and another series
on the number of proprietors, divided into both
farm and nonfarm proprietors. Construction of the
wage and salary data in REIS begins with the BLS
establishment data, but BEA then adds a number
of wage and salary jobs not covered by the unemployment insurance program, such as students
and their spouses employed by colleges and universities, nonprofit organizations that choose not
to participate, elected officials, members of the
state and local judiciary, and so on.
The result is a BEA series that shifts up in
level— in 2002, BEA added about 5.4 percent
more wage and salary workers to the U.S. establishment data, 5.5 percent more in Texas and 8.4
percent more in El Paso— but does not otherwise
alter its statistical characteristics.
The proprietor data in REIS are unique, however. They are not based on a sample but are
taken from income tax filings with the Internal
Revenue Service.4 To be consistent with the wage
and salary data, the BEA counts jobs (not workers) and allows multiple-job holding. Recall that
the household survey counts only workers and
the BLS counts only proprietors whose primary

job is running their own business. The difference
in the count is striking once part-time entrepreneurship is allowed: In the United States in 2002,
there were 8.9 million proprietors and partners in
the household survey and 29.6 million in the BEA
count. The BEA counted 2.4 million proprietors in
Texas in 2002 and 49,000 in El Paso. Obviously,
part-time ownership of a business is common;
examples are barber and beauty shops, childcare
providers, real estate agents, carpenters, plumbers
and tax preparers.
Did the number of proprietors matter over the
course of the business cycle’s latest turns? The
long lag in the delivery of the data lets us see only
the first year of recovery. Table 2 shows the percent change in 2001–02 in the total number of
jobs, wage and salary jobs, and number of proprietors. Note that in the United States, Texas and
all the cities examined, proprietors account for at
least 15 percent of all jobs. Changes in the number of wage and salary jobs are quite close to the
story told by the BLS establishment data in every
area, and (with the exception of Las Cruces) percent changes in the number of proprietors are
quite large, in contrast to the growth of wage and
salary numbers. Adding proprietors into the total
job count improves the job growth estimates in
2001–02 by a half to a full percentage point in
most areas.
Are these good jobs? Or are they just a BandAid following recession? Certainly, some people
may turn to their own business in difficult economic times if they feel threatened in their primary employment or if a slowdown brings less
overtime. If laid off, some professionals may simply print business cards and become instant consultants. Others may find themselves pushed by circumstances into starting a business they have long

Table 2

Growth of Total Employment, Wage and Salary Jobs, and Proprietorships, First Year of Recovery, 2001–02
Percent job growth, 2001– 02

Proprietors
(Percent share)

Total

Albuquerque
Las Cruces

15.6
16.2

.8
3.6

Lubbock
Midland– Odessa
San Angelo

18.9
23.2
21.1

.1
–.1
.2

–.8
–1.1
.5

4.3
3.4
5.2

New Mexico
Texas Triangle
Texas
United States

18.3
17.4
19.4
17.7

1.8
–.2
.2
.1

1.2
–1.4
–.8
–.9

4.6
5.4
4.7
5.5

El Paso

1.7

Wage and salary
1.1

–.01
3.5

Proprietors
5.2

5.5
4.3

NOTES: Based on 1999 MSA definitions. Texas Triangle metros are Austin, Dallas, Fort Worth, Houston and San Antonio.
SOURCES: Bureau of Economic Analysis; author’s calculations.

Issue 3 • 2004

U.S.–Mexico Trade: Are We Still Connected?
(continued from page 4)

NOTES
1

—Robert W. Gilmer

Gilmer is a vice president and senior economist at
the Federal Reserve Bank of Dallas.

NOTES
1

E l

P a s o

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ISSUE 3 • 2004
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