Immigration Costs Mexico Jobs, Too

Ibd
Tue Jun 5, 7:00 PM ET



Immigration: Income from immigrant remittances forms a growing part of Mexico's economy. It helps Mexican consumers all right, but it also hurts job creation there. How's that? Take a look at Mexico's peso.

A few weeks ago, the Bank of Mexico announced a curious phenomenon. As Mexico's overseas remittances dropped in the wake of the May 10 Mother's Day holiday, the peso dropped along with it, falling from 10.7990 to the dollar on May 14, to 10.7941 on May 15.

It was no coincidence. The value of Mexico's peso is strongly tied to the amount of money Mexican workers send home from overseas. But unlike changes in the U.S. dollar, when the peso wobbles, so does Mexico's economy.

This year, the money Mexican workers in the U.S. will send home is expected to grow at a much slower rate, says the Inter-American Development Bank. In March this year, it was up only 0.6%. Last year at that time, it rose 27%, according to Mexico's central bank.

Back in 1994, after the peso's meltdown, a flood of remittances from the U.S. -- they rose sharply in the years right after that economic catastrophe -- helped restore Mexicans' lost purchasing power. It also helped bolster Mexico's battered currency.

Now, a big drop in remittances could spell trouble for Mexico.

That's because a lot could be lost. Peso-power fueled by surging remittances has driven the rise of Wal-Mart in Mexico, helping to make life significantly better for Mexico's expanding middle class.

Remittances also let Mexicans buy more goods from abroad than they produce at home -- in 2006, Mexico's current account showed a $400 million deficit, unusual for a developing country that has signed 43 free-trade pacts and has an export strategy for growth.

But most export-oriented emerging countries run surpluses, exporting more than they consume. In Mexico, $23 billion in remittances last year reversed that natural outcome, creating a big consumer market that pushed them into the red.

Illegal immigrants in the U.S. are paying for Mexico's consumer binge. Currently, some 10% of all Mexican households get remittances from the U.S. Foreign workers now make up 16% of the Mexican work force. If they stayed home and worked in Mexico they would be building Mexico's economy -- not that of the U.S. Instead, they live in poverty here, overwhelming U.S. social services agencies and making Mexico's economy much weaker than it should be.

By the way, Mexican businesses are also hurt by the peso's remittance-driven strength. The strong peso has priced many Mexican goods out of the U.S. market.

These export-led businesses are important to Mexico because they could be growing and creating export-based jobs there. Instead, U.S. consumers buy cheaper from China, India and Africa.

Mexican businesses have to charge more for their goods because of the strong peso. Worse, because they're being deprived of profits from exports, they have less money for efficiency-enhancing investments or expansion. The remittance cash that drives the strong peso, meanwhile, ends up in short-term bank accounts and is mostly used for buying consumer goods -- not investing.

In effect, the high peso means a Mexican television-set manufacturer must compete against China's behemoth TV makers, and do so handicapped by Mexico's stronger currency -- a huge disadvantage.

When even a tiny currency shift can mean the difference between buying Mexican or buying Chinese, there's no question that illegal immigration and its effects are holding Mexico back from joining the ranks of fast-growing developing nations like China and India.

As the U.S. moves toward stiffer enforcement of its immigration laws, remittances have already begun to fall sharply. The silver lining in all this is that by keeping Mexican workers at home, U.S. immigration reform will give Mexico's businesses a fair shot at competing in global markets.

Mexico's economy is only truly sound when its people can work at home -- and Mexico's businesses can use them and the profits they generate to expand and modernize the country on real terms.

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