Workers and Trade Liberalization: The Impact of Trade Reforms in Mexico on Wages and Employment

Abstract

Between 1986 and 1990, the Mexican government reduced tariffs and import license coverage by more than 50%. The author, using micro-level data, analyzes the impact of trade reform on Mexican wages and employment. Industries that had greater reductions in protection levels, she finds, had a larger percentage of low-skill workers. Wage dispersion increased in both the nontradables sector and, to a much greater degree, the tradables sector. This pattern suggests that trade reform increased wage inequality. The decline in import license coverage appears to have reduced relative wages of workers in reformed industries by 2%, but did not affect relative employment. Reductions in tariffs had no statistically significant effect on relative wages or relative employment.Between 1986 and 1990, Mexico undertook a dramatic trade liberalization program, reducing average tariffs and the percentage of domestic output covered by import licenses by more than 50%. Trade liberalization may have stimulated economic growth, but it may also have adversely affected workers in industries that experienced an increase in competition

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