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Tracking wage inequality trends with prices and different trade models: evidence from Mexico

Author

Listed:
  • Timothy Halliday

    (University of Hawaii at Manoa
    University of Hawaii Economic Research Organization
    IZA)

  • Daniel Lederman

    (World Bank)

  • Raymond Robertson

    () (IZA
    Texas A&M University)

Abstract

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. A Salter–Swan 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

  • Timothy Halliday & Daniel Lederman & Raymond Robertson, 2018. "Tracking wage inequality trends with prices and different trade models: evidence from Mexico," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 154(1), pages 47-73, February.
  • Handle: RePEc:spr:weltar:v:154:y:2018:i:1:d:10.1007_s10290-017-0291-3
    DOI: 10.1007/s10290-017-0291-3
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    Citations

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    Cited by:

    1. 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).
    2. 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).
    3. repec:wbk:wbpubs:28682 is not listed on IDEAS

    More about this item

    Keywords

    Mexico; Inequality; Labor markets; Firm heterogeneity;

    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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