Issue 1, 2007
Federal Reserve Bank of Dallas
El Paso Branch

Low-Wage Occupations Remain a Hallmark of El Paso Economy

El Paso has followed national trends in job growth with a steady shift of employment out of manufacturing and into services. It has been a sometimes painful transition for the city, with the number of manufacturing jobs cut nearly in half, from 41,100 to 22,100, between 1990 and 2006. Losses were concentrated in traditional economic mainstays such as textiles, apparel and leather goods.

Meanwhile, services have grown to make up 82.9 percent of private jobs in El Paso, up from 69.7 percent in 1990. Indeed, service-sector employment has risen fast enough to keep the city's private-sector job growth close to national trends since 1990, at annual rates of 1.3 percent versus 1.5 percent for the U.S.

The transition to services, however, has not brought improvement in one key indicator of economic progress. A city's per capita income is often seen as a good measure of relative economic welfare, in comparison with either the U.S. average or other metro areas. The rate of economic progress is sometimes measured by making this comparison over time, with an expectation that poor areas will move closer to the national average.

El Paso's income level is disappointing—standing at only 67 percent of the U.S. average in 2005 (Texas was at 94 percent). So is its lack of sustained progress toward U.S. norms. El Paso was at 64 percent of the U.S. average in both 1995 and 1980. It is a poor city that has made little progress in closing the gap between itself and the rest of the state and the nation.

This lack of progress in relative per capita income can be examined from many directions: the mix of high- and low-wage industries in the city, the low educational achievement level of the workforce or the sustained out-migration of high achievers. This article focuses on only one manifestation of a low-wage economy: the city's occupational mix compared with the U.S. and peer cities. El Paso jobs are concentrated in low-wage occupations, and these jobs pay poorly compared with similar jobs in cities of comparable size and geography.

Per Capita Income and Wages
Table 1 compares per capita income in El Paso with 12 peer cities, selected on the basis of similar population size (600,000 to 1 million) and a common Southern or Southwestern location. Neighboring Albuquerque, N.M., and fellow Texas border city McAllen have particular relevance among these comparisons. Cities are ranked by per capita income level, with Raleigh, N.C.; Albuquerque; and Little Rock, Ark., at the top of the list and El Paso and McAllen at the bottom. Adjusting for the cost of living, using the Council for Community and Economic Research's ACCRA index, does little to change El Paso's or McAllen's position relative to the other medium-sized cities or the conclusions of this article. As a result, the cost-of-living adjustment is not used in the rest of this analysis.[1]

Per capita income is personal income per person, made up of wages and salaries, proprietors' income, property income (rent, interest and dividends) and government transfers. The dominant factor determining the local income level is almost always wages, salaries and employer-paid benefits per worker. Table 2 shows progress in the growth of wages, salaries and benefits per worker among all U.S. metropolitan areas and the selected peer cities from 1999 to 2005. Overall, the peer cities saw real wages and salaries grow at annual rates of 2.7 percent, compared with 2.3 percent for the U.S. During this period, job growth was relatively weak and the contribution of gains in real wages and salaries per worker dominated the growth of total wages and salaries— except in the two border cities. In El Paso and McAllen, we see bigger contributions to income from job growth than rising wage rates.

Note the very different paths to growth taken by El Paso, McAllen and Albuquerque. McAllen employment rose at a remarkable 4.6 percent annual rate, and while El Paso and Albuquerque trailed McAllen, both grew faster than the U.S. or peer-city averages at 1.3 and 1.2 percent per year, respectively. McAllen and Albuquerque registered increases in real wages per worker that also exceeded the U.S. and peer-city averages, while El Paso lagged far behind all areas in its ability to raise real wages per worker. In fact, what sets El Paso apart in these comparisons is the slow growth in compensation per worker.

Occupational Pay and Mix
El Paso's problem in recent years has been less one of job creation and more one of raising worker wages to the level of other peer cities. Table 3 looks at this problem from the perspective of occupational mix. It shows 22 occupations for the group of peer cities in 2005, ranked by pay level and divided into seven high-paid, seven medium-paid and eight low-paid occupations.[2] The differences in peer-city average pay are shown for El Paso, McAllen and Albuquerque. Neither El Paso nor McAllen does well in the comparison. El Paso pays higher wages than average in only five of 22 categories, while McAllen pays more in only three. Albuquerque, in contrast, pays higher wages in 12 of 22 occupations, including five of the top seven.

How many employees fall into each category of high-, middle- and low-paid occupations? Table 4 shows concentration ratios for the peer cities overall and for El Paso, McAllen and Albuquerque.

Concentration ratio is defined as the percentage share of an occupation in the city divided by the percentage share of that occupation in the U.S. The dividing line for this calculation is 1, with values greater than 1 indicating that a city is overrepresented in an occupation compared with a typical place in the U.S. and values less than 1 indicating that it is underrepresented.

Table 4 shows that these medium-sized Southern and Southwestern cities are not magnets for the highest-paid occupations, with only management and health care practitioners overrepresented among the best-paid occupations. As a group, these cities fall significantly short of U.S. averages in computers and math, business and finance, the sciences, the arts and farming. They exceed the U.S. by a significant margin in construction and extraction, installation and repair, and health care support. Their bread and butter in terms of occupational mix lies mainly in the bottom half of the table.

If the group of peer cities focuses its collective energy in the bottom half of the table, it is even truer for El Paso and McAllen because they are more heavily represented in the lowest-wage occupations. Albuquerque has strong positions among the highest-paid occupations, especially legal, architecture and engineering, sciences and health care practitioners. Tables 3 and 4 combined tell us that Albuquerque pays higher wages and salaries than peer cities in more than half the occupations and does a better job of concentrating workers in these well-paid positions.

A simple way to summarize the results is to look at the share of employment by city in the seven highest-paid occupations (Table 5). Raleigh (24.4 percent), Little Rock (21) and Albuquerque (20.9) stand at the top of the list. A ranking of the eight lowest-paid occupations shows El Paso is No. 4 (52.5 percent) and McAllen No. 2 (54.3), compared with a national average of 49.7 percent. Low-wage workers in Albuquerque make up only 45.4 percent of the workforce.

Three Cities Compared
The occupational tables show El Paso's transition from manufacturing to services was a move from one group of low-paid occupations to another. El Paso can no longer count itself as a manufacturing city. Factory jobs made up only 10.8 percent of private employment in El Paso last year, less than the 12.1 percent U.S. average. Services grew to 82.9 percent of private employment, higher than the U.S. share. The city's new service jobs, however, remain concentrated in low-wage occupations.

Albuquerque, in contrast, has had significant success in building a knowledge-based economy by capitalizing on the presence of government facilities like Sandia National Laboratories. Albuquerque used these jobs to build an initial pool of highly trained and qualified workers in math, science and engineering. This, in turn, attracted tech-oriented companies to the city to produce semiconductors, aircraft, aircraft avionics and engines, medical instruments and electrical equipment, adding to a workforce with one of the highest levels of Ph.D.'s per capita in the nation. Momentum in these industries was slowed by the 2000–01 tech bust, but the footprint of these skilled jobs remains clear in Albuquerque's occupational mix. Even with the tech downturn, job growth in Albuquerque nearly matched that of El Paso.

McAllen stands at the other end of the wage and occupational spectrum, with rapid job growth fueled by an ample supply of low-wage labor that in recent years has increased the concentration of local employment in low-wage occupations. McAllen might be described as much like El Paso but without El Paso's heavy losses in manufacturing employment.

McAllen's job growth has been shared by fellow Texas border towns Laredo and Brownsville, helped by the North American Free Trade Agreement and growing cross-border trade due to the maquiladora industry and by financial stability and growth in Mexico. These trends have also been seen in El Paso, but the other border towns have an additional advantage due to their locations between the Texas Triangle, formed by the state's largest cities, and Monterrey, an important industrial center for Mexico. El Paso is twice as far as the other border cities from the Texas Triangle—the state's economic engine. This has been a handicap as low-wage labor has become scarce elsewhere in the state in recent years and businesses have turned first to cities closer to the Triangle.

The key to moving up the occupational ladder is preparation through education and experience. This is as true collectively for a city or metropolitan area as it is for an individual. The role of education is starkly visible in Table 6, which shows the educational attainment of those 25 years and older in the metropolitan areas under discussion.

Looking at the percentage of the population with college training, for example, we find Albuquerque well above the national norms for those who have attended some college, as well as for those who received bachelor's and advanced degrees. El Paso and McAllen fall far short of the U.S. standard in all categories.[3] El Paso's inability to better capitalize on the factory-to-services shift and bring in higher-paying occupations is based squarely on the poor educational achievement of its labor force. McAllen's recent income and employment gains—remarkable as they were for the number of jobs created in recent years—have also been due to the expansion of low-wage jobs rather than a move up the occupational ladder.

The occupational and educational data suggest that a return to the basics—building a more highly educated and better-trained workforce—is the key to raising wages in El Paso and McAllen.

—Jesus Cañas, Robert W. Gilmer and Charles James

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About the Authors Cañas is an assistant economist and James is a research assistant at the El Paso Branch of the Federal Reserve Bank of Dallas. Gilmer is a vice president and senior economist at the Federal Reserve Bank of Dallas. Notes This is in contrast to marked differences in the cost of living for the nation's largest metropolitan areas. See “Income Growth Shows Houston's Economic Strength and Maturity,” by Robert W. Gilmer and Charles L. James, Federal Reserve Bank of Dallas Houston Business, December 2006. Data on the occupational distribution and wages paid by metropolitan area recently became available for 2006 but show no changes that would significantly affect the conclusions of this article. We left Tables 3 and 4 with 2005 data to better match the personal income data for 2005 shown in Tables 1 and 2. The 2005 personal income data are the latest available for that data set. The other two Texas border cities—Laredo and Brownsville—have educational attainment similar to that of McAllen. About Crossroads Crossroads is published by the El Paso Branch of the Federal Reserve Bank of Dallas. The views expressed are those of the authors 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 915-521-5235 or 915-521-5233; fax 915-521-5228; 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.