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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

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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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    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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