The decline of the labour share in Mexico, 1990-2015

Abstract

This paper studies the decline of the labour share in Mexico during the period 1990-2015. It calculates the wage share and alternative measures of the labour income share (which includes labour income of the self-employed) for the whole economy, the private business sector, and its major economic sectors. It carries out a shift-share analysis showing that the decline in the labour share is mostly explained by reductions within the economy's major sectors (including within manufacturing, tradables, and non-tradables) rather than by a recomposition of value added towards those with low labour shares. It distinguishes within each major area of economic activity a modern wage-employment sector and an informal self-employment one. In contrast to agriculture-where the labour share fell due a shift of labour force towards the wage-employment sector-in other major areas of the economy the fall in the labour share is explained by reductions within the wage-employment sector. Econometric estimations indicate that parallel declines in the wage share and relative productivity of non-tradables and in the US manufacturing labour share all played a large role in the reduction of the manufacturing wage share in Mexico. More generally, the analysis suggests that the lagging productivity of the informal non-tradable sector of the economy-itself a reflection of the country's low aggregate rate of economic growth-is a crucial factor in the fall of the labour share in the formal sectors. The paper concludes by discussing possible explanations for the paradox of the slow rate of economic growth in Mexico despite the rise in the profit share, and by pointing out remaining challenges for reconciling the different sources of data in the calculation of the labour share in Mexico.

A Panel Analysis of the Impact of Green Transformation and Globalization on the Labor Share in the National Income

“…Therefore, it may be due to the ability of individual economies to deal with crises, and also their initial level of industrialization. The unchanging (negative) direction of the impact was observed only in the case of exchange rates and the openness of the economy, which is in line with the research carried out by [50,58,63].…”

“…In a fixed-effects model (FE), the intercept controls individual-specific and timeinvariant characteristics [63]:…”

Synthesis and Policy Implications

“…The Mexican case study includes another method of complementing labour force surveys; in this case, by combining these surveys with information from national accounts on wages, employment, value added, intermediate consumption, and capital stock. These augmented data highlight the falling share of labour in national income and identify the lagging productivity of the informal non-tradable sector of the economy as the main driving force (Ibarra and Ros 2017).…”

Productivity growth in India's bakery manufacturing industry

“…This, in turn, would affect the sensitivity of the capital-labour ratio to relative input prices (Alvarez-Cuadrado et al, 2018;Leung and Yuen, 2010). A ten percent increase in the relative price of capital leads to a 1.8% decline in the capital-labour ratio in the long run (Ibarra and Ros, 2017). The industry output has no effect on the capitallabour ratio in the long run.…”