How Mexico's financial crisis affected income distribution
After Mexico's financial crisis in 1994, the distribution of income, and labor earnings improved. Did inequality increase during the recession, as one would expect, since the rich have more ways to protect their assets than the poor do? After all, labor is poor people's only asset (the labor-hoarding hypothesis). In principle, one could argue that the richest deciles experienced severe capital losses, because of the crisis in 1994-96, and were hurt proportionately more than the poor were. But the facts don't support this hypothesis. As a share of total income, both monetary income (other than wages, and salaries) and financial income, increased during that period, especially in urban areas. Financial income is a growing source of inequality in Mexico. Mexico's economy had a strong performance in 1997. The aggregate growth rate was about 7 percent, real investment grew 24 percent, and exports 17 percent, industrial production increased 9.7 percent, and growth in civil construction (which makes intensive use of less skilled labor) was close to 11 percent. Given those figures, it is not surprising that the distribution of income, and labor earnings improved, but the magnitude, and quickness of the recovery prompted a close inspection of the mechanisms responsible for it. The authors analyze the decline in income inequality after the crisis, examine income sources that affect the level of inequality, and investigate the forces that drive inequality in Mexico. They find that in 1997 the crisis had hurt the income share of the top decile of the population, mainly by reducing its share of labor earnings. Especially affected were highly skilled workers in financial services, and non-tradables. Results from 1998 suggest that the labor earnings of those workers recovered, and in fact increased. Indeed, labor earnings are a growing source of income inequality.
|Date of creation:||31 Jul 2000|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: (202) 477-1234
Web page: http://www.worldbank.org/Email:
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Bourguignon, Francois, 1979. "Decomposable Income Inequality Measures," Econometrica, Econometric Society, vol. 47(4), pages 901-20, July.
- Almeida dos Reis, Jose Guilherme & Paes de Barros, Ricardo, 1991. "Wage inequality and the distribution of education : A study of the evolution of regional differences in inequality in metropolitan Brazil," Journal of Development Economics, Elsevier, vol. 36(1), pages 117-143, July.
- Cesar Patricio Bouillon & Arianna Legovini & Nora Lustig, 2003. "Rising Inequality in Mexico: Household Characteristics and Regional Effects," Journal of Development Studies, Taylor & Francis Journals, vol. 39(4), pages 112-133.
- Bell, Linda A, 1997. "The Impact of Minimum Wages in Mexico and Colombia," Journal of Labor Economics, University of Chicago Press, vol. 15(3), pages S102-35, July.
- Cowell, Frank A, 1980. "On the Structure of Additive Inequality Measures," Review of Economic Studies, Wiley Blackwell, vol. 47(3), pages 521-31, April.
- Schultz, T. Paul, 1988. "Education investments and returns," Handbook of Development Economics, in: Hollis Chenery & T.N. Srinivasan (ed.), Handbook of Development Economics, edition 1, volume 1, chapter 13, pages 543-630 Elsevier.
- Moshe Buchinsky, 1998. "Recent Advances in Quantile Regression Models: A Practical Guideline for Empirical Research," Journal of Human Resources, University of Wisconsin Press, vol. 33(1), pages 88-126.
When requesting a correction, please mention this item's handle: RePEc:wbk:wbrwps:2406. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Roula I. Yazigi)
If references are entirely missing, you can add them using this form.