Skill premia in Mexico: demand and supply factors

Abstract

Skill premia trends for the Mexican urban labour market are analysed, decomposing into demand and supply factors. Moreover, among the former both between and within effects are studied, in line with the Katz and Murphy decomposition. It is shown that demand factors are more important for explaining the initial increment in skill premia, but supply factors are responsible for driving them down. It is concluded that the North American Trade Agreement (NAFTA) favours unskilled labour.

Rising College Premiums in Mexico: How Important is Trade?

“…3 The implementation of NAFTA, over ten years starting in 1994, eliminated tari¤s on trade with Canada and the US and committed Mexico to maintaining earlier unilateral liberalizations of FDI. 4 Skill premiums rose between 1985 and 1994 (when the Tequila crisis hit) and stabilized thereafter (Robertson, 2000(Robertson, , 2004Rojas, 2006). Generalizing somewhat, the initial run-up in skill premiums has been attributed to some mix of FDI and trade liberalization (Hanson, 2003), although debate continues regarding the speci…c mechanisms driving skill premiums and how to interpret the experience since 1994 (Esquivel and Rodríguez-López, 2003).…”

“…We demonstrate this through a back of the envelope calculation using Mexican data: Rojas (2006) imputes relative demand shifts in e¢ ciency units from Mexican employment shifts between 44 "sectors" (occupationindustry pairs) between 1990 and 1999. These work out to less than 0.11 for all age groups.…”

“…Studies utilizing this methodology de…ne sectors as occupation-industry pairs, rather than as industries (e.g. Katz and Murphy, 1992;Kijima, 2006;Rojas, 2006), and arrive at estimated between-sector demand shifts that are much smaller than the observed supply shifts. Thus, they lead to the conclusion that the shifting employment composition cannot explain why the college premium rose at all.…”

“…Robertson, 2000Robertson, , 2004Berman et al, 1998) or negative (e.g. Rojas 2006, Kijima 2006). 2 Much, or all, of the rise in skill premiums is therefore attributed residually to forces operating within sectors.…”

Economic Liberalization and Rising College Premiums in Mexico: A Reinterpretation

“…The implementation of NAFTA, over 10 years starting in 1994, eliminated tariffs on trade with Canada and the US, and committed Mexico to maintaining earlier unilateral liberalizations of FDI. 2 Skill premiums rose during 1985-94 (when the Tequila crisis hit) and stabilized for the rest of the 1990s (Robertson, 2000(Robertson, , 2004Rojas, 2006). Generalizing somewhat, the initial runup in skill premiums has been attributed to some mix of FDI and trade liberalization (Hanson, 2003), although debate continues regarding the specific mechanisms driving skill premiums and how to interpret the experience since 1994 (Esquivel & Rodríguez-Ló pez, 2003).…”