Fifty Years of Change on the U.S.-Mexico Border: Growth, Development, and Quality of Life

Chapter 7. Income, Equity, and Poverty

■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ chapter 7 income, equity, and poverty One notable feature of the U.S.-Mexico border is that it is the point of contact between two large nations with very different income levels. The income gap between the two sides of the border is so large that it is difficult to identify any other countries in the world sharing a common border that have income differences as large as those between the United States and Mexico. In 2005, the World Bank estimated Mexico’s per capita income to be $7,449 in current U.S. dollars and that of the United States to be $42,006—approximately six times greater.1 This large an income gap intensifies the cultural and institutional differences between the two countries and generates significant differences in policy priorities. Inevitably , these differences create barriers and misunderstandings that complicate relations between the United States and Mexico. Another notable feature is that the income levels of the communities on the U.S. side are below the U.S. national average, whereas income levels of communities on the Mexican side are above the Mexican national average . The situation is mirrored in the poverty rates, which tend to be higher than the national average on the U.S. side and lower than the national average on the Mexican side. In other words, the income gap and poverty rate differences in the border region are smaller than the differences between those same measures for the two countries as a whole; the border thus reflects a blend of Mexican and U.S. realities. In this chapter we examine these relationships and provide direct estimates of income per person for borderlanders. 140 chapter 7 income and living standards Income is the single most important indicator of living standards since it is directly linked to material well-being and economic development. Income can be used to obtain goods and services, including health care, education, cultural goods, and even a cleaner, healthier environment. Increases in income almost always lead to increased opportunities, whether those income increases occur at the individual, household, or national level; when we compare two or more regions, the residents of the higher-income region usually have a greater variety of choices and more opportunities than residents of lower-income regions. Income, then, is an essential component of well-being and living standards. It is not the only component, however. Although income is central to our concept of people’s well-being, it is important to recognize its limitations as a metric. In part, these limitations stem from the fact that no single number can convey all the factors contributing to complex, multidimensional variables such as living standards or well-being. Income does not tell us much about the importance of nonmarket , nonmaterial, relations and opportunities, such as the availability of leisure time, the opportunity to enjoy family and friends, or a feeling of personal well-being and safety, to name just a few. A high-income individual may spend hours commuting to work on crowded freeways, work long stretches without vacations or breaks, live in a polluted environment, and experience a lower quality of life than someone with less income. Most of these limitations of income as a measure of well-being are spelled out in introductory economic texts, and a few are addressed later in this chapter. We point out these limitations because we wish to avoid overstating what can legitimately be inferred from our estimates of comparative income data in the border region. Income colors the picture we paint, but it is not the only important element in our discussion. conceptual and practical issues in the estimation of border incomes Conceptually, the importance of income as a measure of standard of living lies in its purchasing power. Therefore, to examine trends in income over time and compare them across regions, a measure of income must represent constant purchasing power. To make these comparisons using U.S. and Mexican data, three adjustments have to be made. First, income over time needs to be adjusted for changes in the price level. Second, U.S. and Mexican incomes have to be translated into a common currency. Third, income, equity, and poverty 141 the income data have to be adjusted to make the definition of income the same on both sides of the border. Adjusting for price-level changes is a standard procedure. The income data are divided by the consumer price...