Trade Shocks and Mexican Local Labor Markets in the Great Recession

This paper studies the spread of the U.S. credit crisis to Mexican local labor markets, explicitly identifying the role that trade played in the transmission of the negative shock across the two countries. To identify the trade channel empirically, I exploit the variation in dependence on the U.S. market displayed by Mexican local labor markets. Differences in manufacturing industry structure caused by Mexico's opening process have made a subset of Mexican municipalities especially vulnerable to economic events in the U.S. Mexican municipalities that exported relatively more to the U.S. experienced large and significant differential effects when compared to municipalities more focused on the domestic market. Mexican regions with significant ties to the U.S. market experienced, during the crisis, a significantly larger decrease in employment and wages, and greater within local labor market adjustments than their less open counterparts.