Wage Inequality in Post-Reform Mexico

Using the ENIGH covering 1984-2002, we analyze wages and employment in Mexico after trade liberalization and domestic reforms. We find that wage inequality and returns to post-secondary schooling increased rapidly during 1984-1994 but stabilized since that period. The end of inequality growth was due to a severe macroeconomic crisis which adversely impacted the better educated, an increase in education levels at the end of the 1990s, and a slowdown in skill demand in the latter half of the 1990s. Between industry shifts, consistent with tradebased explanations, account for a part of the increase in skill demand during 1984-1994, but these types of movements actually reduced thedemand for skill in the latter part of the 1990s. The equalizing impact of trade was offset by within-industry demand shifts which continued to favor more educated workers. The Mexican experience in the 1990s suggests that market-oriented reforms have a sharp initial impact on inequality which dissipates over time but further that opening the economy to trade, foreign capital, and global markets does lead to a more long-run increase in the demand for skill.