US manufacturing reallocation: Impacts on Mexican labor markets

Recent protectionist threats have renewed policy interest in the effects of US manufacturing reallocation on Mexico’s labor markets. In this paper, I provide causal evidence that the effects of US demand shifts have historically materialized through Mexico’s export manufacturing sector, with US demand expansions increasing manufacturing employment in Mexico, reducing unemployment and inactivity instead of increasing wages. However, these gains fail to spill over to other formal economic sectors or industries within Mexico, leading only to expansions in informality in nonmanufacturing sectors. This finding highlights the fragility of industrial policies that rely on cost-saving offshoring as the main job source. • US reshoring has renewed interest in its impacts on Mexican labor markets. • US cycles have long shaped Mexico’s labor markets through export manufacturing. • Demand surges boost jobs but not wages, raise informality, and lack spillovers. • US reshoring will likely cut jobs, exposing an industrial model tethered to US demand.