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Accounting for Mexican income inequality during the 1990s

  • De Hoyos, Rafael E.

The author implements several inequality decomposition methods to measure the extent to which total household income disparities can be attributable to sectoral asymmetries and differences in skill endowments. The results show that at least half of total household inequality in Mexico is attributable to incomes derived from entrepreneurial activities, an income source rarely scrutinized in the inequality literature. He shows that education (skills) endowments are unevenly distributed among the Mexican population, with positive shifts in the market returns to schooling associated with increases in inequality. Asymmetries in the allocation of education explain around 20 percent of overall household income disparities in Mexico during the 1990s. Moreover, the proportion of inequality attributable to education endowments increases during stable periods and reduces during the crisis. This pattern is explained by shifts in returns to schooling rather than changes in the distribution of skills. Applying the same techniques to decompose within-sector income differences, the author finds that skill endowments can account for as much as 25 percent of earnings disparities but as little as 5 percent of dispersion in other income sources.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 4224.

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Date of creation: 01 May 2007
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Handle: RePEc:wbk:wbrwps:4224
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  1. Jenkins, S., 1988. "The Measurement Of Economic Inequality," Papers 170, Australian National University - Department of Economics.
  2. Maloney, William F, 1999. "Does Informality Imply Segmentation in Urban Labor Markets? Evidence from Sectoral Transitions in Mexico," World Bank Economic Review, World Bank Group, vol. 13(2), pages 275-302, May.
  3. Redmond, G. & Kattuman, P., 2000. "Employment Polarisation and Inequality in the UK and Hungary," Cambridge Working Papers in Economics 0006, Faculty of Economics, University of Cambridge.
  4. De Hoyos, Rafael E., 2005. "The Microeconomics of Inequality, Poverty and Market Liberalizing Reforms," Working Paper Series RP2005/63, World Institute for Development Economic Research (UNU-WIDER).
  5. Ann Harrison & Gordon Hanson, 1999. "Who Gains from Trade Reform? Some Remaining Puzzles," NBER Working Papers 6915, National Bureau of Economic Research, Inc.
  6. Feenstra, Robert C. & Hanson, Gordon H., 1997. "Foreign direct investment and relative wages: Evidence from Mexico's maquiladoras," Journal of International Economics, Elsevier, vol. 42(3-4), pages 371-393, May.
  7. Shorrocks, Anthony F, 1983. "The Impact of Income Components on the Distribution of Family Incomes," The Quarterly Journal of Economics, MIT Press, vol. 98(2), pages 311-26, May.
  8. Wood, Adrian, 1997. "Openness and Wage Inequality in Developing Countries: The Latin American Challenge to East Asian Conventional Wisdom," World Bank Economic Review, World Bank Group, vol. 11(1), pages 33-57, January.
  9. Jonathan Morduch & Terry Sicular, 2002. "Rethinking Inequality Decomposition, With Evidence from Rural China," Economic Journal, Royal Economic Society, vol. 112(476), pages 93-106, January.
  10. Fields, Gary S & Yoo, Gyeongjoon, 2000. "Falling Labor Income Inequality in Korea's Economic Growth: Patterns and Underlying Causes," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 46(2), pages 139-59, June.
  11. Lars Osberg, 1998. "Economic Insecurity," Discussion Papers 0088, University of New South Wales, Social Policy Research Centre.
  12. Shorrocks, A F, 1982. "Inequality Decomposition by Factor Components," Econometrica, Econometric Society, vol. 50(1), pages 193-211, January.
  13. Lopez-Acevedo, Gladys & Salinas, Angel, 2000. "How Mexico's financial crisis affected income distribution," Policy Research Working Paper Series 2406, The World Bank.
  14. Gordon H. Hanson, 2003. "What Has Happened to Wages in Mexico since NAFTA?," NBER Working Papers 9563, National Bureau of Economic Research, Inc.
  15. Cowell, Frank A & Jenkins, Stephen P, 1995. "How Much Inequality Can We Explain? A Methodology and an Application to the United States," Economic Journal, Royal Economic Society, vol. 105(429), pages 421-30, March.
  16. Revenga, Ana, 1997. "Employment and Wage Effects of Trade Liberalization: The Case of Mexican Manufacturing," Journal of Labor Economics, University of Chicago Press, vol. 15(3), pages S20-43, July.
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