Inequality, living standards, and growth: two centuries of economic development in Mexico^†

Abstract

Historical wage and income data provide both normative measures of living standards, and indicators of patterns of economic development. This study shows that, given limited historical data, median incomes are most appropriate for measuring welfare and inequality, while urban unskilled wages can be used to test dualist models of development. We present new estimates of these series for Mexico from 1800 to 2015 and find that both have historically failed to keep up with aggregate growth: GDP per worker is now over eight times higher than in the nineteenth century, while unskilled urban real wages are only 2.2 times higher, and national median incomes only 2.0 times higher. From the perspective of inequality and social welfare, our findings confirm that there is no automatic positive relationship between economic growth and rising living standards for the majority. From the perspective of development, we argue that these findings are explained by a dual economy model incorporating Lewis's assumption of a reserve army of labour, and we explain why the decline in inequality predicted by Kuznets has not occurred.

Inequality as entitlements over labor

“…The use of per capita GDP as a proxy for wage costs is questionable: Bleynat, Challú and Segal (2017) find that in Mexico the ratio of per worker GDP to urban wages ranged from 0.6 in the nineteenth century to over three in the twenty-first century. Atkinson's average wages is preferable, but it retains the drawback of including the wages of highly skilled professionals.…”

Elite incomes around the world: Command over tradables, non-tradables, and people

“…Instead, we find that elites in poorer countries on average leapfrog, or overshoot, their counterparts in richer countries. We already saw a case of this overshooting in the comparison between Mexico and Sweden from Segal (2021), where the Swedish top 1 per cent is richer in PPP terms but poorer in ELs.…”

“…5 As Segal (2021a) discusses, median rather than mean wages are used to measure entitlements over labour because the median is more representative of the 'typical' worker, and captures the idea of command over labour as opposed to over human capital. Average wages often differ substantially from median wages because of the very high salaries of a small share of highly-skilled workers (also see Bleynat et al 2021: section III). First consider elite incomes in PPP$ and FX$.…”

“…3. Note: the estimates can differ from Segal (2021) because that study used country-specific data which uses different population definitions from the global data used in this study.…”

Financial Globalization

“…The first period of declining inequality coincided with the end of Mexico's post-World War II period of "state-led development, rapid industrialization" (Bleynat et al 2017). The new economic policy announced in 1970, the start of Desarrollo Compartido (Shared Development), had the express objective of reducing income inequality (Kehoe and Meza 2012).…”