ECONOMIC DEVELOPMENT QUARTERLY / November 2001
terribly dramatic. Of the 5 firms in our survey that implicated NAFTA with job losses, recall that not 1 applied for adjustment assistance over the study period (despite the relative ease associated with obtaining TAA compensation).
Having said this, only half of the 16 firms that indicated positive effects on total sales also indi- cated positive employment effects. In short, 50% of these firms experienced output growth in the absence of any employment growth. Personal interviews revealed that this pattern typically occurs among firms with relatively low capacity-utilization rates, which are not unusual in the WNY area. Specifically, output can increase substantially without any need for additional hiring. In many cases, in fact, increased export demand can usually be handled by adding an extra hour or two of overtime within the plant (thus, total wage earnings grow but employment does not). This type of scenario casts doubt on the generalizability of the Commerce Department’s export-employment multiplier, in that regions with low capacity-utilization rates can sometimes increase their export sales without creating new jobs.
On the import side, it is curious that none of the firms that implicated NAFTA with increased competition applied for TAA relief over the 1994 to 1999 period. (Of these firms, 19 actually employed more workers in 1999 than in 1994.) These data suggest some peculiar elasticity condi- tions at the level of individual firms. In one case, for example, total employment expanded consid- erably over the post-NAFTA period—despite rising import competition and reduced exports. Here, the puzzle can be resolved by looking at other factors (in this case, rapid expansion of the domestic market provided enough room for continued growth). Clearly, it would be difficult to make sense of these types of cases in the absence of follow-up interviews.
A further example of ambiguity emerged on the import side, in that we initially thought that cheaper input-sourcing should be classified as a positive impact. In 2 cases, however, NAFTA was directly responsible for a switch from in-house production to imports (resulting in local job losses); in another case, FDI in Mexico was viewed as an overall corporate benefit from the perspective of management (presumably, labor had a different view). Recall also that only 2 of the 18 import- competing firms (see Table 3) cited NAFTA as a negative factor in recent employment trends. How can this be? The short answer is that we did not have a comprehensive list of impact categories (our project was a pilot study). Follow-up inquiries confirmed that import competition can occur with- out job losses or falling sales: Firms in this situation can respond by cutting prices (profits shrink), reducing employee benefits or hours (job levels remain constant, but compensation declines), or by spending more money on marketing (among other things). In short, many of the seemingly contra- dictory findings that emerged from our initial analysis were finally traced to a lack of attention to other variables (e.g., capacity-utilization rates, profit levels, outsourcing, worker benefits, etc.). We hope to fix these flaws in a larger multiregional survey that is planned for the near future.
. . . the competitive problems facing firms in places such as WNY are shaped more by national or regional economic conditions than by international agreements on trade.
Despite the categorical and qualitative nature of our data, several general impressions can be sketched from the findings discussed earlier. First, the task of assessing the impact of trade legisla- tion is problematic from an econometric perspective. Equally intractable difficulties face those that opt for alternative approaches based on survey research or case studies. Specifically, it is hard (if not impossible) to estimate accurately what would have happened in the absence of NAFTA. A sec- ond conclusion is that the overall impact of NAFTA on WNY would appear to be positive. Although our survey results point to smaller effects than those implied by the Commerce Depart- ment’s export-employment multiplier, a positive impact is surely better news than a negative one. Third, it would appear that the competitive problems facing firms in places such as WNY are shaped more by national or regional economic conditions than by international agreements on trade. This conclusion comes from our follow-up interviews, as well as from other studies that have been conducted in the WNY area, including southern Ontario.
These conclusions ought to serve as cautionary notes to decision makers who see expanded trade as a central priority in regional economic planning. The importance of trade is not in dispute. However, the fact that regions like WNY can experience strong export growth in the absence of