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Accounting for Mexican income inequality during the 1990s

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  • De Hoyos, Rafael E.

Abstract

The author implements several inequality decomposition methods to measure the extent to which total household income disparities can be attributable to sectoral asymmetries and differences in skill endowments. The results show that at least half of total household inequality in Mexico is attributable to incomes derived from entrepreneurial activities, an income source rarely scrutinized in the inequality literature. He shows that education (skills) endowments are unevenly distributed among the Mexican population, with positive shifts in the market returns to schooling associated with increases in inequality. Asymmetries in the allocation of education explain around 20 percent of overall household income disparities in Mexico during the 1990s. Moreover, the proportion of inequality attributable to education endowments increases during stable periods and reduces during the crisis. This pattern is explained by shifts in returns to schooling rather than changes in the distribution of skills. Applying the same techniques to decompose within-sector income differences, the author finds that skill endowments can account for as much as 25 percent of earnings disparities but as little as 5 percent of dispersion in other income sources.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 4224.

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Date of creation: 01 May 2007
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Handle: RePEc:wbk:wbrwps:4224

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Keywords: Inequality; Poverty Impact Evaluation; Income; Services&Transfers to Poor; Economic Theory&Research;

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References

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  1. Cowell, Frank A & Jenkins, Stephen P, 1995. "How Much Inequality Can We Explain? A Methodology and an Application to the United States," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 105(429), pages 421-30, March.
  2. Ann Harrison & Gordon Hanson, 1999. "Who Gains from Trade Reform? Some Remaining Puzzles," NBER Working Papers 6915, National Bureau of Economic Research, Inc.
  3. Shorrocks, Anthony F, 1983. "The Impact of Income Components on the Distribution of Family Incomes," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 98(2), pages 311-26, May.
  4. De Hoyos, Rafael E., 2005. "The Microeconomics of Inequality, Poverty and Market Liberalizing Reforms," Working Paper Series, World Institute for Development Economic Research (UNU-WIDER) RP2005/63, World Institute for Development Economic Research (UNU-WIDER).
  5. Fields, Gary S & Yoo, Gyeongjoon, 2000. "Falling Labor Income Inequality in Korea's Economic Growth: Patterns and Underlying Causes," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 46(2), pages 139-59, June.
  6. Jonathan Morduch & Terry Sicular, 1998. "Rethinking Inequality Decomposition, with Evidence from Rural China," Harvard Institute of Economic Research Working Papers, Harvard - Institute of Economic Research 1831, Harvard - Institute of Economic Research.
  7. Jenkins, S., 1988. "The Measurement Of Economic Inequality," Papers, Australian National University - Department of Economics 170, Australian National University - Department of Economics.
  8. Maloney, William F, 1999. "Does Informality Imply Segmentation in Urban Labor Markets? Evidence from Sectoral Transitions in Mexico," World Bank Economic Review, World Bank Group, World Bank Group, vol. 13(2), pages 275-302, May.
  9. Redmond, Gerry & Kattuman, Paul, 2001. "Employment Polarisation and Inequality in the UK and Hungary," Cambridge Journal of Economics, Oxford University Press, Oxford University Press, vol. 25(4), pages 467-80, July.
  10. Wood, Adrian, 1997. "Openness and Wage Inequality in Developing Countries: The Latin American Challenge to East Asian Conventional Wisdom," World Bank Economic Review, World Bank Group, World Bank Group, vol. 11(1), pages 33-57, January.
  11. Lars Osberg, 1998. "Economic Insecurity," Discussion Papers, University of New South Wales, Social Policy Research Centre 0088, University of New South Wales, Social Policy Research Centre.
  12. Robert C. Feenstra & Gordon H. Hanson, 1995. "Foreign Direct Investment and Relative Wages: Evidence from Mexico's Maquiladoras," NBER Working Papers 5122, National Bureau of Economic Research, Inc.
  13. Gordon H. Hanson, 2003. "What Has Happened to Wages in Mexico since NAFTA?," NBER Working Papers 9563, National Bureau of Economic Research, Inc.
  14. Revenga, Ana, 1997. "Employment and Wage Effects of Trade Liberalization: The Case of Mexican Manufacturing," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 15(3), pages S20-43, July.
  15. Shorrocks, A F, 1982. "Inequality Decomposition by Factor Components," Econometrica, Econometric Society, Econometric Society, vol. 50(1), pages 193-211, January.
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Cited by:
  1. Fiorio, Carlo V & Saget, Catherine, 2010. "Reducing or aggravating inequality? : Preliminary findings from the 2008 financial crisis," ILO Working Papers, International Labour Organization 456487, International Labour Organization.
  2. Claudia Tello & Raul Ramos & Manuel Artís, 2013. "“Changes in Wage Structure in Mexico Going Beyond the Mean: An Analysis of Differences in Distribution, 1987-2008”," IREA Working Papers, University of Barcelona, Research Institute of Applied Economics 201224, University of Barcelona, Research Institute of Applied Economics, revised Mar 2013.

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