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Tracking Wage Inequality Trends with Prices and Different Trade Models: Evidence from Mexico

Author

Listed:
  • Halliday, Timothy J.

    (University of Hawaii at Manoa)

  • Lederman, Daniel

    (World Bank)

  • Robertson, Raymond

    (Texas A&M University)

Abstract
Mexican wage inequality rose following Mexico's accession to the General Agreement on Tariffs and Trade/World Trade Organization in 1986. Since the mid-1990s, however, wage inequality has been falling. Since most trade models suggest that output prices can affect factor prices, this paper explores the relationship between output prices and wage inequality. The rise of inequality can be explained by the evolution of the relative price of skill-intensive goods relative to unskilled-intensive goods, but these prices flattened by 1999 and thus cannot explain the subsequent decline in wage inequality. An alternative trade model with firm heterogeneity driven by variations in the relative price of tradable relative to non-tradable goods can explain the decline in wage inequality. The paper compares this model's predictions with Mexican inequality statistics using data on output prices, census data, and quarterly household survey data. In spite of the model's simplicity, the model's predictions match Mexican variables reasonably well during the years when wage inequality fell.

Suggested Citation

  • Halliday, Timothy J. & Lederman, Daniel & Robertson, Raymond, 2016. "Tracking Wage Inequality Trends with Prices and Different Trade Models: Evidence from Mexico," IZA Discussion Papers 10156, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp10156
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    References listed on IDEAS

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    Cited by:

    1. Raymundo M. Campos-Vázquez & Nora Lustig, 2017. "Labour income inequality in Mexico: Puzzles solved and unsolved," WIDER Working Paper Series wp-2017-186, World Institute for Development Economic Research (UNU-WIDER).
    2. Raymundo M. Campos-Vázquez & Nora Lustig & John Scott, 2018. "Inequality in Mexico: Labour markets and fiscal redistribution 1989-2014," WIDER Working Paper Series wp-2018-188, World Institute for Development Economic Research (UNU-WIDER).
    3. Roche Rodriguez, Jaime Alfonso & Robertson, Raymond & Lopez-Acevedo, Gladys & Zárate, Daniela Ruiz, 2023. "Trade Liberalization and Local Labor Markets in Morocco," IZA Discussion Papers 16213, Institute of Labor Economics (IZA).
    4. Fernández, Manuel & Messina, Julián, 2018. "Skill premium, labor supply, and changes in the structure of wages in Latin America," Journal of Development Economics, Elsevier, vol. 135(C), pages 555-573.
    5. Raymundo M. Campos-Vazquez & Nora Lustig, 2017. "Labour income inequality in Mexico: Puzzles solved and unsolved," Working Papers 1719, Tulane University, Department of Economics.
    6. Julian Messina & Joana Silva, 2018. "Wage Inequality in Latin America," World Bank Publications - Books, The World Bank Group, number 28682.
    7. Fernandez Sierra, Manuel & Messina, Julián, 2017. "Skill Premium, Labor Supply and Changes in the Structure of Wages in Latin America," IZA Discussion Papers 10718, Institute for the Study of Labor (IZA).
    8. Raymundo Campos-Vázquez & Nora Lustig & John Scott, 2018. "Inequality in Mexico: Labour markets and fiscal redistribution 1989–2014," WIDER Working Paper Series 188, World Institute for Development Economic Research (UNU-WIDER).
    9. Berg,Claudia N. & Robertson,Raymond & Lopez-Acevedo,Gladys C., 2022. "Exports and Labor Demand : Evidence from Egyptian Firm-Level Data," Policy Research Working Paper Series 10213, The World Bank.
    10. Mita Bhattacharya & Kien Trung Nguyen, 2019. "Trade liberalization and the wage–skill premium: Evidence from Vietnamese manufacturing," Economics of Transition and Institutional Change, John Wiley & Sons, vol. 27(2), pages 519-540, February.

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    More about this item

    Keywords

    labor markets; inequality; Mexico; firm heterogeneity;
    All these keywords.

    JEL classification:

    • F66 - International Economics - - Economic Impacts of Globalization - - - Labor
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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