Tracking Wage Inequality Trends with Prices and Different Trade Models

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.

Bibliographic Details

Main Authors:	Halliday, Timothy, Lederman, Daniel, Robertson, Raymond
Format:	Working Paper biblioteca
Language:	English en_US
Published:	World Bank, Washington, DC 2015-11
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 https://hdl.handle.net/10986/23440
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