Publication: Tracking Wage Inequality Trends with Prices and Different Trade Models: Evidence from Mexico
Date
2015-11
ISSN
Published
2015-11
Author(s)
Abstract
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.
Link to Data Set
Citation
“Halliday, Timothy; Lederman, Daniel; Robertson, Raymond. 2015. Tracking Wage Inequality Trends with Prices and Different Trade Models: Evidence from Mexico. Policy Research Working Paper;No. 7471. © World Bank, Washington, DC. http://hdl.handle.net/10986/23440 License: CC BY 3.0 IGO.”
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