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At the Heart of Texas: Cities’ Industry Clusters Drive Growth

McAllen–Edinburg–Mission: Retail, Medical Hub Draws on Cross-Border Trade

At a Glance


Population (2014): 831,073
Population growth (2006–14): 18.6 percent
Median household income (2014): $34,801
National MSA rank (2014): No. 68*
*The McAllen–Edinburg–Mission metropolitan statistical area (MSA) encompasses only Hidalgo County.

  • Health services, government and retail trade are the three largest clusters in McAllen, though transportation and logistics is also an important sector, attributable to the border crossings with Mexico.
  • In terms of employment, McAllen wasn’t hit as hard as the rest of the state during the Great Recession, and the border metro rebounded to prerecession levels before other major metros. McAllen wasn’t notably affected by slowing elsewhere in the state during 2015.
  • Talent flight is a challenge for McAllen’s economy, but investments in retail, transportation infrastructure and health care could boost future economic activity.

HISTORY: From a Private Ranch to a Bridge to Mexico

McAllen began as a private ranch in the late 19th century. The city was not officially incorporated until 1911, several years after the St. Louis, Brownsville and Mexico Railway established a depot on ranch-donated land.

At the request of President Woodrow Wilson, 20,000 soldiers from New York were deployed to McAllen in 1916 to help quell border disturbances. The area subsequently boomed, with the population growing from 1,200 to 6,000 by 1920.

McAllen’s economy was primarily agriculture-based, with some oil exploration, in the early 20th century. In 1941, the city built a suspension bridge across the Rio Grande to Reynosa, Mexico. The McAllen–Hidalgo–Reynosa International Bridge increased tourism and trade, helping establish McAllen as an important port of entry.

The discovery of oil in the Reynosa area in 1947 prompted a large in-migration from the Mexican interior, boosting tourism and providing McAllen with an inexpensive labor supply. The McAllen Foreign Trade Zone—the first inland foreign trade zone in the United States—was established in 1973. Foreign trade and tourism remain important to the region’s economy.[1]

INDUSTRY CLUSTERS: Retail, Health Drive Economy

McAllen’s cluster composition is shown in Chart 6.1. Clusters are organized by location quotient (LQ), which represents the share of local employment in each cluster relative to the nation, and the change in employment share between 2006 and 2014.[2] “Star” quadrant clusters, such as health services and retail, have a larger share of employment relative to the nation (an LQ exceeding 1) and are fast growing. “Emerging” industries, such as recreation and food services, are smaller relative to the nation (LQ less than 1) and fast growing. Industries in the “mature” quadrant, such as government, are more concentrated but slower growing, and “transitioning” industries, like business and financial services, are smaller relative to the nation and slower growing.

Health Care Dominates McAllen Clusters

Health care is a key sector in the McAllen economy. While the cluster has grown in importance in most metro areas, it is more concentrated in McAllen (and has the highest LQ) relative to other metros in this report. Nearly 19 percent of McAllen’s workers are in the health cluster. Hospitals and medical centers, including McAllen Medical Center and Edinburg Regional Medical Center, are among the metro’s top employers.[3]

Retail is typically big in the larger border communities, and this star cluster employs more than 15 percent of McAllen’s workers. The metro area serves as the retail trade center of South Texas and northern Mexico. Retail tourism draws customers from as far as Monterrey, Mexico’s third-largest metro area, which is 150 miles southwest of McAllen. Mexican shoppers account for an estimated 30 to 40 percent of retail activity.[4]

Overall, retail trade makes up nearly 13 percent of McAllen’s total output.[5] In terms of gross sales (overall taxable sales including wholesale trade and services), 56 percent come from retail in McAllen, compared with about 25 percent for the state.[6]

Government employees figure prominently in border economies, and McAllen is no exception. They make up the largest share of workers in McAllen at nearly 23 percent. While the government sector’s workforce has grown since 2006, other clusters have expanded significantly faster (Chart 6.2). Thus, government’s share of total employment has declined.

Education Sector Grows the Fastest Among McAllen Clusters

The city of McAllen has more than 2,000 municipal workers, while border crossings and international trade represent a major federal employment commitment involving U.S. Customs and Border Protection and other federal agencies. Public school systems, however, dominate the government sector. Fifty-eight percent of all government employees work for elementary and secondary schools.[7]

Although public education has not grown significantly, the private education sector, which includes private schools and colleges, has expanded rapidly since 2006.

With three international border crossings in the metropolitan statistical area, McAllen is the third-busiest border crossing in Texas (behind Laredo and El Paso) in terms of commercial truck traffic and pedestrians.[8] Consequently, transportation and logistics is an important emerging industry. While its concentration (LQ of 0.9) isn’t as significant locally as nationally, the sector has grown since 2006, adding workers and increasing its share of total McAllen employment.

The highly concentrated sectors—those with LQs greater than 1—are higher paying in McAllen than their less-concentrated counterparts (Table 6.1). However, real (inflation-adjusted) wages overall remain significantly lower than U.S. industry averages, and wage growth in the star and mature industries, at 2 percent, is slower than in the less-concentrated sectors, at 7.6 percent. Reduced government spending in recent years may have slowed public sector wage growth, while pay in the retail sector remains low.

Table 6.1: Earnings Across Dominant McAllen Clusters Trail U.S. Performance
Cluster McAllen   U.S.
  2006 2008 2010 2012 2014   2014
Health services 32,504 33,058 33,892 30,305 31,235 56,055
Government 39,579 41,356 42,538 41,576 42,311 51,726
Retail 24,671 23,449 24,328 25,013 25,522 28,743
Clusters with location quotient >1 33,496 33,948 35,103 33,394 34,150
Clusters with location quotient <1 29,136 29,104 29,219 30,492 31,347
Average earnings (total) 31,368 31,353 32,301 31,586 32,000 51,361
NOTES: Clusters are listed in order of location quotient (LQ); clusters shown are those with LQs greater than 1. Earnings are in 2014 dollars.
SOURCES: Texas Workforce Commission; Bureau of Labor Statistics; authors’ calculations.

A low-pay environment in the burgeoning health industry is unusual; doctors, nurses and other health workers are generally well-educated and command high wages. However, in McAllen’s health cluster, more than 51 percent of workers are employed in home health care services.[9] Many are unlicensed, nonmedical caregivers, and the average salary for these jobs is significantly lower—$13,900 in 2014—than for the entire sector. The rest of the health industry averaged about $49,000 in 2014.

DEMOGRAPHICS: Poorer and Younger than the State

McAllen’s population is much younger than that of the other metros (Chart 6.3). The median age of 29.2 is almost five years less than the statewide figure. The city has the largest share of under-15-year-olds of all metros in this report at 28 percent. Families in McAllen also tend to have more children—the metro averages more than 4 people per family, compared with 3.4 for Texas.

McAllen Has Youngest Population of Major Metros

The population is predominantly Hispanic at over 91 percent, and more than 88 percent of the population self-identifies as being of Mexican descent. McAllen has the largest foreign-born population of any metro in the report at nearly 28 percent, illustrating the city’s deep ties with Mexico.

McAllen is also home to a large group of seasonal residents who, at an average age of 71, contrast starkly with the younger inhabitants of the metro and the Rio Grande Valley.

These “Winter Texans” come primarily from midwestern U.S. states and Canada to find a more temperate climate. In 2014, the approximately 100,000 migrants spent nearly $710 million locally. While their numbers have declined over the past several years, in part due to border violence concerns, their household spending has increased strongly and is up nearly 35 percent since 2006.[10]

McAllen trails the state in terms of educational outcomes. Nearly 38 percent of the population age 25 and over has no high school diploma—twice the Texas average. Only 18 percent of the population holds a bachelor’s degree or higher, compared with 28 percent in Texas.

McAllen has a high poverty rate—34 percent of the population lived below the poverty line in 2014, compared with 17 percent in Texas—and its median household income of $34,801 was two-thirds of the Texas figure, $53,035.

EMPLOYMENT: Quick Recovery from Recession

McAllen weathered the Great Recession far better than most metros. While Texas lost 4.1 percent of its jobs from peak to trough, McAllen employment fell only 1.8 percent from its peak in October 2008 to the trough in March 2009. McAllen also was the first metro to recover, reaching prerecession employment levels after only 24 months.

Job growth in the postrecession period, however, was significantly slower than in the rest of the state. From December 2009 to December 2014, McAllen employment grew about 12 percent, or an average of 2.3 percent per year—slower than the Texas annual average of 2.8 percent.

In 2015, McAllen performed better than the rest of the state—growing at an annualized rate of 2.0 percent through November, compared with 1.3 percent for Texas overall. Manufacturing employment in McAllen increased at an annual 7.2 percent rate over the same period despite widespread weakness in this sector across the state and nation. Also, trade, transportation and utilities and education and health expanded last year.

OUTLOOK: Mixed, Dependent on Ties to Mexico

Many highly educated McAllen residents seek employment elsewhere because of the higher pay offered in the bigger cities. This situation may change in the future; McAllen has greatly improved the quality and availability of education. Nevertheless, the emerging industries that employ highly educated workers are not yet dominant enough to retain much of the young, educated workforce.[11]

While a strong dollar is hurting retail sales in the near term, cross-border retail trade will continue to provide support to the area’s economy over the long run. A stable outlook for Mexico in 2016, along with energy reforms in that country, may spur new activity that bodes well for growth in this border metro.

Recent investments in several sectors in McAllen could bolster the area. Announced expansions to La Plaza Mall, among the largest retail hubs, will add a new wing—space for an 80,000-square-foot, two-level anchor store; two junior anchors; more than 50 smaller specialty stores; and up to eight restaurants.[12]

The McAllen Miller International Airport announced $26.5 million in improvements that will nearly double the size of the terminal.[13] A new toll road, state Highway 365, will facilitate increased cross-border trade.[14] Additionally, Doctor’s Hospital at Renaissance announced a $200 million expansion that will double the number of available beds.[15]

McAllen–Edinburg–Mission Growth Outlook
Drivers Challenges
  • Significant expansion to La Plaza Mall will increase retail sales and attract retail tourists from beyond the region.
  • Investments in transportation infrastructure, including highways and the airport, will provide new opportunities for trade and the transportation industry.
  • An announced $200 million hospital expansion, which would more than double patient capacity, should aid growth in the health care sector.
  • Mexico energy and banking reforms may open up new opportunities for U.S. businesses, stimulating trade through McAllen.
  • Skill shortages continue to be an issue. It is hard to attract skilled workers—and young, educated people tend to leave the region to find higher-paying jobs elsewhere.
  • A strong dollar will continue to negatively affect retail sales in the short to medium term.
  • A population that is relatively poorer and less-educated than the Texas average may limit area growth.


  1. The history of McAllen is taken from the Texas State Historical Association’s Handbook of Texas,
  2. Individual industry cluster shares do not add to 100 because some smaller industries at the three-digit-or-higher level in the North American Industry Classification System (NAICS) are included in multiple clusters, while some industries are not part of any of the clusters shown. Clusters include other related industries. For instance, semiconductor manufacturing (NAICS 3344) is included in both the advanced materials and information technology and telecommunications clusters. (See the Appendix for more information.)
  3. Information about McAllen’s top employers is from the McAllen Economic Development Corp.,
  4. See “Dollar-Sensitive Mexican Shoppers Boost Texas Border Retail Activity,” by Roberto Coronado and Keith R. Phillips, Southwest Economy, Fourth Quarter, 2012,
  5. Metropolitan statistical area (MSA) 2014 gross domestic product by industry is from the Bureau of Economic Analysis.
  6. See Texas Comptroller gross sales and tax data at
  7. See definition in NAICS 6111 (local government only), elementary and secondary schools.
  8. Border crossing information is from the Bureau of Transportation Statistics. Data for McAllen are listed under Hidalgo, Texas, which is part of the McAllen–Edinburg–Mission MSA. See
  9. See definition of home health care workers in NAICS 6216.
  10. See “Winter Texan 2013–2014 Survey,” Business and Tourism Research Center, University of Texas–Pan American,
  11. See McAllen Economic Scan, 2013,
  12. See La Plaza Mall’s expansion announcement, May 15, 2015,
  13. See “McAllen Airport Unveils $26.5M Expansion,” by Kristen Mosbrucker, The Monitor, May 5, 2015,
  14. Based on KRGV-TV’s State Highway 365 report, July 7, 2015.
  15. See “Doctor’s Hospital Looks to Expand,” by Kristen Mosbrucker, Valley Morning Star, July 18, 2015,
At the Heart of Texas