Why Has Wage Dispersion Grown in Mexico? Is It the Incidence of Reforms of Growing Demand for Skills?

Cragg, Michael; Epeaum, Mario

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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Academic Units
Department of Economics, Columbia University
Department of Economics Discussion Papers, 740
Published Here
March 2, 2011


August 1995