Why Has Wage Dispersion Grown in Mexico? Is It the Incidence of Reforms of Growing Demand for Skills?
In the mid 1980s, Mexico undertook major trade reform, privatization and
deregulation. This coincided with a rapid expansion in wages and employment
that led to a rise in wage dispersion. This paper examines the role of industry
and occupation-specific effects in explaining the growing dispersion. We find that
despite the magnitude and pace of the reforms, industry-specific effects explain
little of the rising wage dispersion. In contrast occupation-specific effects can
explain almost half of the growing wage dispersion. Finally, we find that the
economy became more skill-intensive and that this effect was larger for the
traded sector because this sector experienced much smaller low-skilled
employment growth. We therefore suggest that competition from imports had an
important role in the fall of the relative demand for less-skilled workers.
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