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Tracking Wage Inequality Trends with Prices and Different Trade Models: Evidence from Mexico

In: Not Just Neighbors The Remarkable Economic Relationships in North America

Author

Listed:
  • Timothy Halliday
  • Daniel Lederman
  • Raymond Robertson

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, 2026. "Tracking Wage Inequality Trends with Prices and Different Trade Models: Evidence from Mexico," World Scientific Book Chapters, in: Raymond Robertson (ed.), Not Just Neighbors The Remarkable Economic Relationships in North America, chapter 12, pages 405-441, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789819825295_0012
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    Cited by:

    1. is not listed on IDEAS
    2. Raymundo M. Campos-Vázquez & Nora Lustig, 2017. "Labour income inequality in Mexico: Puzzles solved and unsolved," WIDER Working Paper Series wp-2017-186, World Institute for Development Economic Research (UNU-WIDER).
    3. Raymundo M. Campos-Vázquez & Nora Lustig & John Scott, 2018. "Inequality in Mexico: Labour markets and fiscal redistribution 1989-2014," WIDER Working Paper Series wp-2018-188, World Institute for Development Economic Research (UNU-WIDER).
    4. Raymundo M. Campos-Vazquez & Nora Lustig, 2017. "Labour income inequality in Mexico: Puzzles solved and unsolved," Working Papers 1719, Tulane University, Department of Economics.
    5. Berg, Claudia N. & Robertson, Raymond & Lopez-Acevedo, Gladys, 2022. "Exports and Labor Demand: Evidence from Egyptian Firm-Level Data," IZA Discussion Papers 15627, IZA Network @ LISER.
    6. 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).
    7. Roche Rodriguez, Jaime Alfonso & Robertson, Raymond & Lopez-Acevedo, Gladys & Zárate, Daniela Ruiz, 2023. "Trade Liberalization and Local Labor Markets in Morocco," IZA Discussion Papers 16213, IZA Network @ LISER.
    8. Mita Bhattacharya & Kien Trung Nguyen, 2019. "Trade liberalization and the wage–skill premium: Evidence from Vietnamese manufacturing," Economics of Transition and Institutional Change, John Wiley & Sons, vol. 27(2), pages 519-540, February.
    9. Raymundo Campos-Vázquez & Nora Lustig & John Scott, 2018. "Inequality in Mexico: Labour markets and fiscal redistribution 1989–2014," WIDER Working Paper Series 188, World Institute for Development Economic Research (UNU-WIDER).
    10. Julian Messina & Joana Silva, 2018. "Wage Inequality in Latin America," World Bank Publications - Books, The World Bank Group, number 28682, April.

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    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F15 - International Economics - - Trade - - - Economic Integration
    • F22 - International Economics - - International Factor Movements and International Business - - - International Migration
    • J61 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Geographic Labor Mobility; Immigrant Workers
    • P16 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Institutions; Welfare State
    • P52 - Political Economy and Comparative Economic Systems - - Comparative Economic Systems - - - Comparative Studies of Particular Economies
    • O24 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Trade Policy; Factor Movement; Foreign Exchange Policy

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