IDEAS home Printed from https://ideas.repec.org/a/emc/ecomex/v22y2013i2p245-278.html
   My bibliography  Save this article

Why did wage inequality decrease in Mexico after NAFTA?

Author

Listed:
  • Raymundo M. Campos-Vázquez

    () (Centro de Estudios Económicos, Colmex, Mexico City)

Abstract

Contrary to what happened before NAFTA, wage inequality in Mexico decreased after 1994. This paper investigates the forces behind the post- NAFTA decrease in wage inequality. Using a quantile decomposition, I show that the decline in wage inequality is driven by a decline in the returns to education and potential experience, especially at the top of the wage distribution. Supply and demand are the main contributors to this change. On the supply side, there were substantial increases in college enrollment rates after 1994, which translated into an increase in the proportion of workers with a college degree. However, this increase in supply was not met by an increase in demand for the highly educated: the proportion of the workforce in top qualified occupations and close to the top occupations did not increase as much as the increase in supply. As a result, college educated workers exercised wage pressure in top and less-than-top qualified occupations. A Bound and Johnson (1992) decomposition confirms that changes in relative supply are the main determinant behind the decrease in wage inequality.

Suggested Citation

  • Raymundo M. Campos-Vázquez, 2013. "Why did wage inequality decrease in Mexico after NAFTA?," Economía Mexicana NUEVA ÉPOCA, , vol. 0(2), pages 245-278, July-Dece.
  • Handle: RePEc:emc:ecomex:v:22:y:2013:i:2:p:245-278
    as

    Download full text from publisher

    File URL: http://www.economiamexicana.cide.edu/num_anteriores/XXII-2/01-EM_Campos_Vazquez.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. David Fairris & Gurleen Popli & Eduardo Zepeda, 2008. "Minimum Wages and the Wage Structure in Mexico," Review of Social Economy, Taylor & Francis Journals, vol. 66(2), pages 181-208.
    2. DiNardo, John & Fortin, Nicole M & Lemieux, Thomas, 1996. "Labor Market Institutions and the Distribution of Wages, 1973-1992: A Semiparametric Approach," Econometrica, Econometric Society, vol. 64(5), pages 1001-1044, September.
    3. Ferreira, Francisco H. G. & Leite, Phillippe G. & Litchfield, Julie A., 2008. "The Rise And Fall Of Brazilian Inequality: 1981–2004," Macroeconomic Dynamics, Cambridge University Press, vol. 12(S2), pages 199-230, September.
    4. Mariano Bosch & Marco Manacorda, 2010. "Minimum Wages and Earnings Inequality in Urban Mexico," American Economic Journal: Applied Economics, American Economic Association, vol. 2(4), pages 128-149, October.
    5. Gerardo Esquivel, 2011. "The Dynamics of Income Inequality in Mexico since NAFTA," ECONOMIA JOURNAL OF THE LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION, ECONOMIA JOURNAL OF THE LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION, vol. 0(Fall 2011), pages 155-188, August.
    6. Chiquiar, Daniel, 2008. "Globalization, regional wage differentials and the Stolper-Samuelson Theorem: Evidence from Mexico," Journal of International Economics, Elsevier, pages 70-93.
    7. Maarten Goos & Alan Manning, 2007. "Lousy and Lovely Jobs: The Rising Polarization of Work in Britain," The Review of Economics and Statistics, MIT Press, vol. 89(1), pages 118-133, February.
    8. Katz, Lawrence F. & Autor, David H., 1999. "Changes in the wage structure and earnings inequality," Handbook of Labor Economics,in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 26, pages 1463-1555 Elsevier.
    9. Luis F. Lopez-Calva & Nora Lustig, 2009. "The recent decline of inequality in Latin America: Argentina, Brazil, Mexico and Peru," Working Papers 140, ECINEQ, Society for the Study of Economic Inequality.
    10. Revenga, Ana, 1997. "Employment and Wage Effects of Trade Liberalization: The Case of Mexican Manufacturing," Journal of Labor Economics, University of Chicago Press, vol. 15(3), pages 20-43, July.
    11. Zadia M. Feliciano, 2001. "Workers and Trade Liberalization: The Impact of Trade Reforms in Mexico on Wages and Employment," ILR Review, Cornell University, ILR School, vol. 55(1), pages 95-115, October.
    12. Jim Airola & Chinhui Juhn, 2008. "Wage Inequality in Post-Reform Mexico," Journal of Income Distribution, Journal of Income Distribution, pages 110-134.
    13. David Fairris, 2003. "Unions and Wage Inequality in Mexico," ILR Review, Cornell University, ILR School, vol. 56(3), pages 481-497, April.
    14. Christian Dustmann & Johannes Ludsteck & Uta Schönberg, 2009. "Revisiting the German Wage Structure," The Quarterly Journal of Economics, Oxford University Press, vol. 124(2), pages 843-881.
    15. Leonardo Gasparini & Guillero Cruces & Leopoldo Tornarolli, 2011. "Recent Trends In Income Inequality In Latin America," ECONOMIA JOURNAL OF THE LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION, ECONOMIA JOURNAL OF THE LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION, vol. 0(Spring 20), pages 147-201, January.
    16. David H. Autor & Lawrence F. Katz & Melissa S. Kearney, 2005. "Trends in U.S. Wage Inequality: Re-Assessing the Revisionists," NBER Working Papers 11627, National Bureau of Economic Research, Inc.
    17. Gurleen K. Popli, 2011. "Changes in Human Capital and Wage Inequality in Mexico," Oxford Development Studies, Taylor & Francis Journals, vol. 39(3), pages 369-387, February.
    18. Alexandra Spitz-Oener, 2006. "Technical Change, Job Tasks, and Rising Educational Demands: Looking outside the Wage Structure," Journal of Labor Economics, University of Chicago Press, vol. 24(2), pages 235-270, April.
    19. Daron Acemoglu, 2002. "Technical Change, Inequality, and the Labor Market," Journal of Economic Literature, American Economic Association, pages 7-72.
    20. Gordon H. Hanson, 2003. "What Has Happened to Wages in Mexico since NAFTA?," NBER Working Papers 9563, National Bureau of Economic Research, Inc.
    21. José Mata & José A. F. Machado, 2005. "Counterfactual decomposition of changes in wage distributions using quantile regression," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 20(4), pages 445-465.
    22. Robertson, Raymond, 2004. "Relative prices and wage inequality: evidence from Mexico," Journal of International Economics, Elsevier, vol. 64(2), pages 387-409, December.
    23. Stephen Machin, 2008. "An Appraisal of Economic Research on Changes in Wage Inequality," LABOUR, CEIS, vol. 22(s1), pages 7-26, June.
    24. David H. Autor & Lawrence F. Katz & Melissa S. Kearney, 2005. "Rising Wage Inequality: The Role of Composition and Prices," Harvard Institute of Economic Research Working Papers 2096, Harvard - Institute of Economic Research.
    25. Cragg, Michael Ian & Epelbaum, Mario, 1996. "Why has wage dispersion grown in Mexico? Is it the incidence of reforms or the growing demand for skills?," Journal of Development Economics, Elsevier, vol. 51(1), pages 99-116, October.
    26. Fairris, David & Levine, Edward, 2004. "La disminución del poder sindical en México," El Trimestre Económico, Fondo de Cultura Económica, vol. 0(284), pages 847-876, octubre-d.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Andrew Dustan & Alain De janvry & Elisabeth Sadoulet, 2015. "Flourish or Fail? The Risky Reward of Elite High School Admission in Mexico City," Vanderbilt University Department of Economics Working Papers 15-00002, Vanderbilt University Department of Economics.
    2. Claudia Tello & Raul Ramos & Manuel Artís, 2012. "Changes in wage structure in Mexico going beyond the mean: An analysis of differences in distribution, 1987-2008," Working Papers XREAP2012-07, Xarxa de Referència en Economia Aplicada (XREAP), revised May 2012.
    3. Raymundo M. Campos-Vazquez & Nora Lustig, 2017. "Labour income inequality in Mexico: Puzzles solved and unsolved," WIDER Working Paper Series 186, World Institute for Development Economic Research (UNU-WIDER).
    4. Raymundo M. Campos-Vázquez & Andrés Hincapié & Ruben Irvin Rojas-Valdés, 2012. "Family Income Inequality and the Role of Married Females' Earnings in Mexico: 1988-2010," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 49(1), pages 67-98, May.
    5. Nora Lustig & Jaime Ros, 2011. "Latin America's Economic Challenges: Lessons for Emerging Economies," Working Papers 1112, Tulane University, Department of Economics.
    6. Raymundo M. Campos Vázquez & Andrés Hincapie & Rubén I. Rojas Valdés, 2011. "Family Income Inequality and the Role of Wives Earnings in Mexico: 1988-2010," Serie documentos de trabajo del Centro de Estudios Económicos 2011-07, El Colegio de México, Centro de Estudios Económicos.

    More about this item

    Keywords

    wage inequality; Mexico; education; employment.;

    JEL classification:

    • J20 - Labor and Demographic Economics - - Demand and Supply of Labor - - - General
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
    • O54 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Latin America; Caribbean

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:emc:ecomex:v:22:y:2013:i:2:p:245-278. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ricardo Tiscareño). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.