Description: Tracking Wage Inequality Trends with Prices and Different Trade Models : Evidence from Mexico

Tracking Wage Inequality Trends with Prices and Different Trade Models : Evidence from Mexico

Mexican wage inequality rose following Mexicos accession to the General Agreement on Tariffs and Trade/World Trade Organization in 1986. Since the mid-1990s, however, wage inequality has been falling. Since most trade models suggest that output pri...

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Bibliographic Details
Main Authors:	Halliday, Timothy, Lederman, Daniel, Robertson, Raymond
Language:	English en_US
Published:	World Bank, Washington, DC 2015
Subjects:	TARIFFS FREE TRADE AGREEMENT IMPERFECT SUBSTITUTES PRODUCTION SKILLED WORKERS INDIVIDUAL FIRMS SALES INCOME INTEREST CONSUMER PRICE INDICES MINCERIAN WAGE EQUATIONS EXCHANGE TARIFF CHANGES EXPORTS DEVELOPING COUNTRIES DOMESTIC MARKET MARGINAL PRODUCT POLITICAL ECONOMY EXPORT PRICES PRICE INDICES ECONOMIC EFFECTS INTERNATIONAL TRANSPORTATION DEVALUATION EQUILIBRIUM EQUAL SHARE DISTRIBUTION VARIABLES TRADE REFORMS DOMESTIC PRICE MARGINAL PRODUCTIVITY TRADE OPENNESS PRICE INPUTS PRODUCT QUALITY RETURNS TO SCALE FREE TRADE TRENDS FOREIGN MARKETS LABOR MARKET TOTAL FACTOR PRODUCTIVITY SAVINGS PRODUCTION STRUCTURE COSTS DEVELOPMENT ECONOMICS EXCHANGE RATE MOVEMENTS EXOGENOUS VARIABLES DOMESTIC PRODUCERS TARIFF REDUCTION FIXED COSTS SURPLUS PRODUCTS PRODUCTIVITY GLOBALIZATION CRITERIA MARKETS WTO OPEN ECONOMY TRADE MODELS INTERNATIONAL ECONOMICS PRICE SERIES IMPORTS PRODUCT UTILITY TRADE AGREEMENT EXPORT MARKET SUBSTITUTES LIBERALIZATION ECONOMIC RESEARCH MARKET PRICE POWER PARITY GENERAL AGREEMENT ON TARIFFS EXPENDITURE TRADE MODEL UNEMPLOYMENT CONSUMPTION GENERAL EQUILIBRIUM HUMAN CAPITAL TECHNOLOGICAL CHANGE SUBSTITUTE WAGES DOMESTIC MARKETS VALUE FOREIGN DIRECT INVESTMENT PURCHASING POWER DEMAND TRADE REFORM DOMESTIC SALES DEMAND FUNCTION IMPORT COMPETITION FACTOR PRICES CONSUMER PRICE PRICE CHANGES CONSUMERS
Online Access:	http://documents.worldbank.org/curated/en/2015/11/25249909/tracking-wage-inequality-trends-prices-different-trade-models-evidence-mexico http://hdl.handle.net/10986/23440

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Summary:	Mexican wage inequality rose following Mexicos accession to the General Agreement on Tariffs and Trade/World Trade Organization in 1986. Since the mid-1990s, however, wage inequality has been falling. Since most trade models suggest that output prices can affect factor prices, this paper explores the relationship between output prices and wage inequality. The rise of inequality can be explained by the evolution of the relative price of skill-intensive goods relative to unskilled-intensive goods, but these prices flattened by 1999 and thus cannot explain the subsequent decline in wage inequality. An alternative trade model with firm heterogeneity driven by variations in the relative price of tradable relative to non-tradable goods can explain the decline in wage inequality. The paper compares this model’s predictions with Mexican inequality statistics using data on output prices, census data, and quarterly household survey data. In spite of the models simplicity, the model’s predictions match Mexican variables reasonably well during the years when wage inequality fell.

Tracking Wage Inequality Trends with Prices and Different Trade Models : Evidence from Mexico

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