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Abstract:Over the past few years, there has been a substantial increase in wage inequality between skilled and unskilled workers in Mexico. This increment in the wage gap coincided with both a period of rapid technological change and the process of trade liberalization in Mexico that began in the mid-eighties. Using a methodology suggested by Leamer (1998), we separate out the effects of technological progress and trade on the real wage evolution of skilled and unskilled workers in Mexico's manufacturing industry for the periods 1988-1994 and 1994-2000. We find that, as implied by the Stolper-Samuelson theorem, trade liberalization would have led to a reduction in the wage gap in Mexico in the first period. This effect, however, was offset by the large negative impact of technological progress on the real wage of unskilled workers. On the other hand, during the period 1994-2000 the effect of trade liberalization on the wage gap was nil, thus suggesting that the slight increase in wage inequality that occurred in this period was also driven by technological progress.JEL classification: F16, J31

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. We examine the role of market forces (demand and supply of labour by skill), institutional factors (minimum wages and unionization rate), and public policy (cash transfers) in explaining changes in inequality. We apply the 're-centred influence function' method to decompose changes in hourly wages into characteristics and returns. The main driver is changes in returns. Returns rose (1989-94) due to institutional factors and labour demand. Returns declined (1994)(1995)(1996)(1997)(1998)(1999)(2000)(2001)(2002)(2003)(2004)(2005)(2006) due to changes in supply and, to a lesser extent, in demand; institutional factors were not relevant. Government transfers contributed to the decline in inequality, especially after 2000. Terms of use: Documents in

This paper reviews the pattern of income inequality in Mexico since 1994. It shows that in the past few years there has been an important reduction of income inequality in Mexico, which has almost reverted the sharp increase in inequality observed between 1984 and 1994. Using a Gini decomposition exercise we conclude that labor income, transfers and remittances have all played an important role in this process. We also argue that the equalizing effect of labor income and the reduction of wage inequality in Mexico can be explained by a structural change in Mexico"s workforce composition in terms of education and experience. In general, we conclude that the recent reduction of inequality in Mexico is due to the interaction of both, the market and the State.

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