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Increasing wage dispersion and the changes in relative employment and wages in Mexico's urban informal sector: 1987-1993

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  • Jose Pagan
  • Jose Tijerina-Guajardo

Abstract

This study analyses the role of changes in informal/formal relative employment, wage levels and wage inequality in explaining increasing wage dispersion in Mexico during the 1987-1993 period. From 1987 to 1993, the variance of the log of hourly wages for Mexican workers increased by more than 50 per cent. Using data from the Encuesta nacional de empleo urbano we find that this increase in the overall wage dispersion was mainly driven by increasing wage dispersion in the formal sector coupled with a faster growth in formal sector employment as a percentage of total employment. However, compression in the distribution of wages within the informal sector contributed to substantially slowdown the increasing overall wage inequality. About 60 per cent of the 1987-1993 4.65 percentage point reduction in the informal sector share of total employment is explained by changes in the structure that determines sectoral employment; the rest is explained by changes in the composition of the labour force, particularly increases in the sectoral education gap and a change in the regional relative share of sectoral employment. Also, from 1987 to 1993 the sectoral wage ratio increased from 0.59 to 0.63. It seems that a relative improvement in unobserved skills in the informal sector helped to close the wage differential but this effect was partially offset by an increase in the relative prices of both observed and unobserved skills, as well as increases in relative observed skills in the formal sector, particularly education.

Suggested Citation

  • Jose Pagan & Jose Tijerina-Guajardo, 2000. "Increasing wage dispersion and the changes in relative employment and wages in Mexico's urban informal sector: 1987-1993," Applied Economics, Taylor & Francis Journals, vol. 32(3), pages 335-347.
    • Handle: RePEc:taf:applec:v:32:y:2000:i:3:p:335-347
    DOI: 10.1080/000368400322769
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    References listed on IDEAS

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    1. Robert A. Margo & T. Aldrich Finegan, 1995. "Changes in the Distribution of Wages, 1940-1950: The Public vs. the Private Sector," NBER Working Papers 5389, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Axel Heitmueller, 2004. "Job Mobility In Britain: Are The Scots Different? Evidence From The Bhps," Scottish Journal of Political Economy, Scottish Economic Society, vol. 51(3), pages 329-358, August.
    2. Lawrence Dacuycuy, 2007. "On wage density comparisons: bandwidth selectors and test outcomes," Applied Economics Letters, Taylor & Francis Journals, vol. 14(3), pages 203-208.

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