The incidence of reforms and the structure of wages in Mexico: 1984--2000

This dissertation investigates the changes in the wage structure in Mexico in the years following trade liberalization and domestic reform. I utilize the Mexican Household Income and Expenditure Survey (ENIGH) covering the years 1984–2000. I begin with an in-depth analysis of wages and employment in Mexico after reform and find that wage inequality and returns to post-secondary schooling increased sharply during 1984–1994 but has remained stable since that period. The relative quantity of skilled workers grew along with the relative wage, suggesting an increase in demand for skilled workers. While skill demand increased, I find little evidence of skill upgrading within industries, usually attributed to skill-biased technological change.; While conventional models of international trade predict an equalizing effect of trade on wages in developing countries abundant in less-skilled labor, contrary to these predictions, skill premiums and skill demand increased in Mexico following trade liberalization. Alternative trade theories have offered several channels through which trade can increase relative wages and demand for skilled workers. One such channel is foreign direct investment and outsourcing. I exploit regional variation in the data to examine the relationship between the skill demand and outsourcing, as proxied by maquiladora employment. In contrast to previous studies that used manufacturing data and focused on the 1980's, I find little evidence that maquiladora employment is positively related to the rise in demand for skill. The recent slowdown in inequality growth also casts doubt on foreign direct investment and outsourcing as explanations for the rise in skill premiums during 1984–1994, since both of these activities have continued to increase while inequality has stabilized. I conclude that much of the rise in wage inequality during the first decade, 1984–1994, reflected effects of privatization and other domestic reforms.