Paper Income Inequality Dynamics Since NAFTA.pdf

8/9/2019 Paper Income Inequality Dynamics Since NAFTA.pdf

1/35

The Dynamics of Income Inequality in Mexico since NAFTA [with Comment]Author(s): GERARDO ESQUIVEL and Guillermo CrucesSource: Economa, Vol. 12, No. 1 (Fall 2011), pp. 155-188Published by: Brookings Institution PressStable URL: http://www.jstor.org/stable/41302974.

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2/35

GERARDO

ESQUIVEL

The

Dynamics

of

Income

Inequality

in

Mexico since NAFTA

That

at

nineteenth

least

Mexico

since

century

is a

Alexander

highly

that

unequal

the

von

region

Humboldt

country

then

is

known

wrote

a fact hat

as

at the

New

has

beginning

been

Spain

recognized

was

of

"the

the

t least since Alexandervon

Humboldtwrote t the

beginning

f the

nineteenth

entury

hat he

region

thenknown

as New

Spain

was "the

country

f

nequality." adly,

this s still rue

n

the

wenty-firstentury.

or

example,

Corbacho and Schwartz

2002)

point

out that Mexico's income

inequality

s

significantly

ore

pronounced

han heLatinAmerican

verage,

which s theregionwith hehighest egreeof nequalityntheworld."Also,

looking

at the

ong-run

rend n income

inequality

n

Mexico leaves little

room to be

optimistic.

istoricaldata show thatwhile Mexico achieved an

important

eduction

n

nequality uring

he

1960s

and

1970s,

periods

f

very

rapid

economic

growth,

he

country

as

experienced ery

ittle

progress

n

incomedistributionince the 1980s

(Sz6kely

2005).

This

situation, owever,

may

have started o

change

n recent

years.

This

paperprovides

videnceon thereductionn

ncome

nequality

hathas taken

place

in

Mexico since 1994 and discusses some of the

ikely

ourcesof this

trendsee figure ),which s importantor t easttwo reasons:first,ecause

it has almost

ompletely

eversed he

widely

documentedncrease n

nequal-

ity

hat ccurred

n

the1984-94

period

Bouill6n,

Legovini,

nd

Lustig

2003;

Legovini,

ouill6n,

nd

Lustig

005),

and

second,

ecause the eductioneems

to be theresult

f two

mportant

tructural

hanges

n the

Mexican

economy:

Gerardo

squivel

s with l

Colegio

eMexico.

This

aper

was

originally

ritten

s

part

ftheUnited

ations

evelopmentrogram

(UNDP)

roject

Markets,

he

tate,

nd he

ynamics

f

nequality,"

oordinated

y

Nora

Lustig

nd uis

elipe 6pez-Calva.

thank

articipants

n

previous

eminarst

UNoffices

n

New ork ndMexico ity,swell sparticipantst he atin mericannd aribbeanco-

nomic

ssociation

LACEA)

ongresses

n

Riode Janeiro

ndBuenos ires or heirseful

comments

nd

uggestions.

am

articularly

hankfulo

GuillermorucesndAdriana

ugler

for heirommentsnd

ecommendationsn

previous

ersionf his

ork.dith ortes

ro-

vided

ruly

utstanding

esearch

ssistance.he sual

isclaimers

pply.

155

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3/35

156

ECONOMIA,

all 011

FIGURE

1. Mexico'sin oefficientnd heilndex

Source:EMASnd orfdank

2010).

the rrival

f

better-targeted

ocial

programs

uch s

Progresa/Oportunidades

and a reductionn abor ncome nd

wage inequality

hat eems to be associ-

atedwith he

mprovement

n educational evels n Mexico. A third ontribut-

ing

factor o therecent eduction

n

inequality

as been the

growing

low f

remittanceshat

many

Mexicans

iving

broad end o their amilieseft ehind

inMexico.

The

possibility

hat oth ocial

policy

nd educational

mprovementsar-

tially

xplain

thereductionn income

nequality

n Mexico cannotbe under-

estimated.n

fact,

ncome

nequality

s

diminishing

n several atinAmerican

countries,

nd it s

possible

that imilar actors ould be at

play

in

many

of

those ountries.1 his could ead not

only

to an

appropriate

valuation

f the

new social

policies

that re

being mplemented

n

the

region

but also

to

a

reconsiderationf the effect hat

higher

evels

of

education,

ombinedwith

1.

See,

or

xample,

erreira,eite,

ndWai-Poi

2007)

nd anos nd thers

2010)

or

the

razilian

ase;

Gasparini

nd ruces

2010)

or

rgentina;

nd berhaidnd

ngel

2008)

for hile.

or

more

eneral

iew n ecentrendsn

nequality

n atin

merica,

ee hentro-

ductiono

Ldpez-Calva

nd

ustig

2010)

s well s

Gasparini,

ruces,

nd ornarolli

2009).



4/35

Gerardo

squivel

157

TABLE 1. OverviewfMexican

conomy

Stage Stage

I

Stage

II

Stage

V

Stage

Feature

1950-70 1970-82 1982-94

1994-2000

2000-06

Macro

High

rowth Highrowth

Low

rowth

1994risisnd Low

rowth

withacro-

with acro-

with acro-

recovery;

ow withacro-

economic

economic

economic

growth

ith

economic

stability instability

adjustment

somenflation

stability

Openness

Semidosed Semidosed Unilateral

NAFTA;

reerade

Open

conomy

economy

ith

economy

ith

openness

agreement

tariffnd

tariffnd in

985;

withhe U

nontariff nontariff beginning

barriers barriers of AFTA

negotiations

in 992

Inequality

Relatively

table

Rapid

eduction ncrease

Reduction Reduction

Social

Low

Low

Nontargeted

argeted Expansion

f

protection

social

programs

n

Progresato

programs:

ruralreas:

urban

Solidaridad

Progresa

nd areas

Procampo

Source:

uthor's

ompilation.

globalization

nd

trade

iberalization,

ay

have on

nequality

n

middle-income

countries.2

The

paper

first

rovides

an

overview of macroeconomic onditions n

Mexico

during

he

past

decades followed

by

estimates

f ncome

nequality

in

Mexico

using

alternative efinitionsf income.

Next,

a Gini

decomposi-

tion

nalysis

s conducted

o

nvestigate

hecontributionf differentncome

sources o

the volution f

nequality

n

Mexico,

and therole

of

ncome

abor

andwage inequalitys discussed n explaining hedynamics f inequality.

The

conclusions ollow.

An

Overview f Mexico'sEconomic onditions ince 1950

Table 1

provides

n

oversimplifiedummary

f Mexico's economic

perfor-

mance

ince

1950.

n

thefirst

tage

1950-70),

GDP

grew

t a

relatively apid

pace

(3

percent yearpercapita),

with

price tability,

ow fiscal

deficits,

nd

a fixedexchangeratesince 1956. The second stage (1970-82) was again

2. See

Goldberg

nd

avcnik

2007)

or recent

urvey

n his

ssue.



5/35

158 ECONOMI

,

Fall 011

a

period

of

rapid

growth

3

percent

year

per capita),

but withmacro-

economic

instability.

uring

this

period,

Mexico

suffered

ouble-digit

annual

nflation

nd

arge

devaluations

n

both1976

and 1981.

Mexico's

gov-

ernment

ncurred

arge

fiscal

deficits,

nd

public

sector

xternal ebt

oared.

The

two initial

tages

were characterized

y

a

semi-closed

conomy

with

high

ariff

nd nontariffarriers.

uring

he first

tage, nequality

emained

relatively

table,

whereas

during

he

econd

stage

here

was a

rapid

reduction

in

ncome

nequality

n Mexico

(Szekely

2005).

The third

tage 1982-94)

was

one of structural

djustment

nd

mportant

economic reforms.

uring

this

period

Mexico

went

through process

of

macroeconomic

djustment

hat ed to a radical

change

in its economic

model:

the

government

rastically

educed

publicexpenditures;

herewas

an

important

enegotiation

f

public

sector

foreign

ebt;

arge-scaleprivatiza-

tiontook

place;

and,

n

1985,

in

the midst

f an

unexpected

ollapse

in the

price

of ts main

export

oil),

Mexico

unilaterally pened

up

its

economy

y

significantly

educing

tstariffs

nd

eliminating

most f ts nontariff

arriers.

In

the

early

1990s,

Mexico

announced ts

intention f

going

well

beyond

those eformsand ocking hemn)byproposing

free rade

greement

ith

the

United

tates

nd Canada.3

The

agreement

ent nto

ffect

n

1994 as

the

North

AmericanFree

Trade

Agreement

NAFTA),

establishing

he

argest

free rade rea

in theworld and the

most

symmetrical.

uring

his

period

the

Mexican

economy

tagnated

n

per capita

terms

nd income

nequality

increased

ubstantiallyhroughout

he

period.

The first

ear

of the

post-NAFTA

period

was characterized

y

a severe

macroeconomic

risis

that

egan

n

December 1994.

In

that

month,

Mexico

experienced

large

devaluation

nd was close

to

ncurring

financial

efault.

The fiscal ndmacroeconomicdjustmentf 1995 led to a sharp nd steep

decline

n

economic

activity uring

995

(a

contraction

f 8

percent

n

per

capita

GDP).

Later,

rom

995

to

2000,

thedomestic

conomy

ecovered

el-

atively uickly,

mainly

ecause of

an

important

ncrease

n Mexican

exports

to

the

U.S.

market.

etween

1995

and

2000,

Mexico's

per

capita

GDP

grew

at a rate

of

4

percent

year.

The

first

ost-NAFTA

stage

was also

characterized

y

the

mplementa-

tionof two

mportant

ocial

and economic

programs:

rogresa

later

known

as

Oportunidades)

nd

Procampo.

The first

rogram

s a

targeted

onditional

cash transferrogram hat tartedn 1997 and is currentlyonsidered he

most

mportant

ntipoverty

rogram

n Mexico.

Progresa

was

implemented

3.

SeeTornellnd

squivel

1997)

ormore etailsn hese

ssues.



6/35

Gerardo

squivel

159

first

n

rural

reas,

although

t has includedurban reas since 2001. The sec-

ond

program,

rocampo,

s an

income-support rogram

or

gricultural ro-

ducers

designed

o

help

them

ace thetransition rom closed

economy

o a

more

open

economy.

The

program,

which

began

in

1994

when NAFTA

went

nto

effect,

s considered

badly designed program

n

redistributive

terms

Esquivel, Lustig,

nd

Scott

2010).

On

average,

he

period

1994-2000

was one of mediocre conomic

performance

2

percent rowth

year),

but

it was also the

period during

which ncome

inequality

tarted o fall. The

mostrecent tage,from

000 to

2006,

was one

of low

growth

withmacro-

economic

stability. uring

those

years,

Mexico's

per capita

GDP

grew

at

only

1

percent

year,

ecause

twas

negatively

ffected

y

theU.S. recession

of 2000-01.

Nevertheless,

uring

his

period

ncome

nequality

was reduced

even further.

Income

nequality

n

Mexico

ince

NAFTA

Before nequalitynMexico is discussed, t s importantoclarifywhatmea-

sure f

nequality

nd what

efinitionf

ncome s used

n

this

aper,

incedif-

ferent efinitions

ould lead

not

only

to different

stimates f

nequality

ut

also to

slightly

ifferentonclusions.4

ost of

the

results,

owever,

re

robust

to alternative efinitions

f ncome

nd alternative

easures f

nequality.

In

this

paper

the Gini coefficient

s used as

the

preferred

measure

of

inequality.5

his measure

not

only

satisfies

ll the desirable

properties

f an

inequality

measure6 ut

also can be

decomposed

by

ncome

ource,

feature

that

s of nterest ere.On

theother

and,

nequality

s

usually

measured

sing

either urrentotal ncomeor currentmonetaryncome.7 oth definitionsre

used

n

the nitial stimates

f

nequality,

ut ater

monetary

ncome stimates

are the

only

focusof attention.

igure

2

provides

simpledescription

f the

4.

Corbacho

nd chwartz

2002)

nclude

survey

f

Gini oefficientstimates

nMexico

for ifferent

eriods

nd ifferentncomeefinitions.

5. TheGini

oefficientoes

not

apture

ell

hanges

t he xtremes

f he istribution.

However,

ther easures

f

nequality

hathow rends

imilaro hose escribed

n he ext

are vailableromhe

uthorn

equest.

ee

also

Campos

2008)

or

omparisons

sing

lter-

native easuresf

nequality.

6. These rinciplesre s follows:dherenceo he igou-Daltonransferrinciple;ym-

metry;ndependence

f

cale;

omogeneity;

nd

ecomposability.

7.

Theres thirdefinitionf ncome

hats

widely

sed

nMexico: et otalncome.

his

definitions similaro

urrentotalncomeut educts

ifts

nd n-kindransfers.

hismea-

sures the ne sed

n

he

fficialstimationf

poverty

atesnMexico.



7/35

160

EC0N0MIA,

Fall 011

FIGURE 2. Sourcesf urrentotalncomenMexico

f

^

-

Laborncome

-

Own usinesses

Monetary

Income

-

Assetsncome

*

Remittances

Current .

publicransfers

Total

J

-Transfers

Income '

^

pens,ons

rivateransfers

Non-

Monetary

ncome

V

Source:NIGH

various

ears).

components

f both ncome

definitions.

he

description

f the sources of

monetary

ncome are laterused in a

Gini

decomposition

xercise.All esti-

matesuse information

rom he National

Survey

of Household ncome and

Expenditure

ENIGH,

the

cronym

n

Spanish). Surveys

re available for he

years

1984, 1989, 1994,

1996, 1998, 2000, 2002, 2004, 2005,

and 2006.

Figure

3 shows the

evolutionof the Gini coefficientn Mexico forthe

period

1984-2006,

using

alternative efinitions f income. The

figure

clearly

hows the

existence

of

an inverted

shape

that

eaks

in

1994

in all

cases

and that

teadily

declines thereafter.he

figure

lso

shows the

rapid

increase n

inequality

hat ook

place

between 1984 and

1994,

which has

been

reported

n,

among

other

studies, Bouill6n,

Legovini,

and

Lustig

(2003) andLegovini,Bouill6n,andLustig 2005). The Gini coefficient or

current

monetary

ncome

dropped

from .564 in 1994 to 0.505 in

2006,

a

10

percent

eduction;

he

corresponding

measurefor otal ncome

dropped

from

.537 to

0.494,

an 8

percent

eduction. hese

reductions re similar n

magnitude

o those

recently

bserved

n

Brazil and documented n Barros

and others

2010).

In

annual

terms,

nequality

n Mexico has fallen t a rate

of 0.9 and 0.7

percent year

n

the case of current

monetary

ncome and

total

ncome,

respectively. lthough

hose rates are stillbelow the annual

1

percent

ate at which ncome

nequality

diminished

n

Mexico between

1954 and1984,they how significantmprovementith espect o the 1994

figures.

Figure

3 also

shows

a

few other

nteresting

esults. or

example,

he

fig-

ure

shows that hedistributionf

monetary

ncome

s more

unequal

that

s,



8/35

Gerardo

squivel

161

FIGURE 3 Mexico:ini oefficientsor lternativencome

efinitions,

984-2006

Source:uthorslaborationasednNIGHvariousears).

it has a

higher

Gini

coefficient)

han

hedistributionf total urrentncome

(which

s

explained y

thefact hat

onmonetary

ncome s less

unequally

is-

tributed);

n the ther

and,

he

figure

lso shows hat efore ither ransfers

r

remittancesre

ncluded,

heGini coefficientf

monetary

ncome

ends o be

slightly igher

han heGini coefficientf

monetary

ncome,

hus

uggesting

the

finalizing

ontribution

f these wo

factors,

n issue discussed ater

n

the

paper.

The

Urban/Rural

imensionf

nequality

n

Mexico

Previous tudieshave

shown herelevance f

understanding

he

dynamics

f

rural

ndurban

nequality

n Mexico

separately.

or

example,

nuco-Laguette

and

Szekely

(1996)

showed that

nequality

withinurban and rural

areas

accounted or84

percent

f total

nequality

n Mexico

in

1992,

whereas

nly

one-sixth ftotal

nequality

as

explained

y

the ural/urban

ap.

For that ea-

son,thispapernow focuseson thedynamics f nequalityn rural nd urban

areas in Mexico since 1994. As discussed

ater,

his

distinction

s crucialto

understanding

he contributionf differentactors

n

the recentdownward

trendn

nequality

n the

ountry.



9/35

162

ECONOMIA,

all 011

FIGURE 4. Urban exico:ini oefficientsor lternativencome

efinitions,

994-2006

Source:

uthor'slaborationasedn NIGH

various

ears).

Figures

and 5 show theevolution f theGini

coefficientsorurban nd

rural reas

n

Mexico for he 1994-2006

period.8

he

divergence

n

the

pat-

terns f

nequality y

sector s

quite striking.

n one

hand,

ncome

nequality

in urban reas n

Mexico,

regardless

f

the ncomedefinition

sed,

has

steadily

declined ince 1994. On the

other,

ncome

nequality

n rural reas

ncreased

until

000,

according

o thetotal ncome

definition,

r until

002,

according

to

any

other

ncomedefinition. fter

eaching

ts

peak,

ncome

nequality

n

rural reas

basically

returnedo ts 1994 level. The existence f sucha differ-

entiated

attern

f ncome

nequality

n rural nd

urban reas somehow

ug-

gests

hat ifferentactors ouldbe

affecting

he

dynamics

n

those wo ectors

of theMexican

economy.

his dea is

explored

n

moredetail ater.

The istributionf

Monetary

ncome

n

Mexico

The distributionf

monetary

ncome

n

Mexico is now

explored

n moredetail

by ooking

t the

growth

ncidence urves

GICs)

suggested y

Ravallion nd

8. Please ote hathissnot

rural/urbanncome

nequalityecomposition

xercise.his

analysis

efers

nly

o he ncome

nequality

ynamics

ithinuralnd rbanreas nd oes

not

iscusshe ontributionf ach ector

o otal

nequality

n

Mexico.



10/35

Gerardo

squivel

163

FIGURE5. Rural exico:ini oefficientsor lternativencome

efinitions,

994-2006

Source:uthor's

laborationasedn NIGH

various

ears).

Chen

2003).

These curves howthe

percent hange

n

per

apita

ncome

long

the ntire ncomedistribution

etween wo

points

n

time.

Figure

shows the

GIC for he ntire 994-2006

period

t the

national, rban,

nd rural evels.

The

negative lope

in thefirst

raph learly

hows

why

Mexico's income

inequality

iminished

uring

his

period:

ncome t the

bottom

art

f thedis-

tribution

rew

faster han ncome

t themiddle nd the

op parts

f thedistri-

bution. hefigurelso shows hedifferentatternsollowed ytheurban nd

rural ncomedistributions

uring

his

period.

n

urban

reas,

ncome

growth

was

pretty

lat cross the entire istribution

xcept

for

he

top

three

eciles,

which

xperienced

maller nd in some

cases even

negative

ncome

growth

rates.

n

thecase of rural

reas,

two

aspects

re

salient:

irst,

verage

ncome

growth

was

greater

han

n

urban reas

(an

effect

hat,

iven

the

relatively

large

ural/urban

ap,

reduces

nequality),

nd

second,

he ural

GIC curve lso

has a

negative lope,

so that hebottom alfof the rural

ncomedistribution

had

higher

ncome

growth

ates han he

top segment

f

thedistribution.

ll

thesefactshave contributedo thereductionn income nequalitynMexico

that as taken

lace

since 1994.

Interestingly,

hese

results

lready uggest

hat hereductionn

nequality

in Mexico between

1994 and 2006 came fromdifferentources: in

urban



11/35

164

ECONOMIA,

all 011

FIGURE 6.

Mexico:rowthncidenceurves

sing onetary

ncome,

994-2006

Source:

uthor's

laboration

ased

n

NIGH

various

ears).

areas,

t was the result f the relative

and

for ome even

absolute)

oss of

income at the

top part

of the

distribution,

hereas

n rural

reas,

t

was

the

generalized mprovement

n rural ncomes as well as the

specific mprove-

ment n the ncome of the

relatively oor

ruralhouseholds

hroughout

his

period.

DecompositionAnalysis

f Sourcesof ncome

nequality

n Mexico

A

decomposition

f the Gini coefficients conductedbelow for the

years

1994, 2000,

and 2006 to

investigate

he contributionf differentncome

sources o theobserved

nequality

f

monetary

ncome n Mexico.



12/35

Gerardo

squivel

165

Sourcesf

Monetary

ncome

The main

component

f

monetary

ncome n

Mexico is labor

ncome,

which

accounted or round 0

percent

f all

monetary

ncome

n

2006;

the econd-

largest

ource of

monetary

ncome

n

Mexico is income obtainedfrom he

businessesof

self-employed

ndividuals,

which ccountsfor

nother 0

per-

cent

of

monetary

ncome.

The

rest

f

monetary

ncome

proceeds

from vari-

ety

of

sources,

ncluding

ransfersnd remittances.

Table

A1

in the

ppendix

hows the

percentage

f households hat eceive

incomefrom ourcesother han abor ncome.This table shows thedramatic

increase hat as taken

lace

since

1992

in

the

percentage

f Mexican

house-

holds thatreceive some

type

of transfer.

lthough

ess

than

24

percent

f

households eceived

public

or a

privatemonetary

ransfer

n

that

year,by

2006

more

han 5

percent

f all

households

eported eceiving art

f their

monetary

ncome

hough private

r

public

transfer.he

single

most

mpor-

tantcontributoro this trend s

undoubtedly

he social

program rogresa

Oportunidades,

hich,

ccording

o 2006 ENIGH

data,

s received

by

15

per-

cent of Mexican households.9Two other

factors ccount for

part

of the

increase n transferso Mexican households:first,he ruralprogram ro-

campo,

whichwas intended o

support

ural

producers uring

he

transition

to trade iberalization

n

agricultural roducts,10

nd, second, remittances,

which re now received

n

7

percent

f Mexican

households,

wice as

many

as

in

1994. Based on

what s known

bout

the

distributiveffects

f the

Pro-

campo regressive)

nd

Progresa/Oportunidadesvery rogressive) rograms

(Esquivel

et al.

2010),

it is

quite ikely

that

hey

an

actually

ccountfor

great

deal of the

up-and-down ynamics

f ncome

nequality

n

rural reas

depicted

n

figure

.

Methodology

Lerman nd Yitzhaki

1985)

showed hat he

Gini

coefficientor

otal

ncome

inequality

G)

with

K

income ources an be

expressed

s

(1)

G

=

tstGkRk,

k=l

9. Formore etailsbout his

rogram,

ee Corbachond chwartz

2002)

nd

Levy

(2006).

10.

For

more etailsn

Procampo,

eeCorbachond chwartz

2002).



13/35

166 ECONOMI

,

Fall 011

where

k

s the hareof sourcek ntotal

ncome,

Gk

s theGini coefficientf

the ncome ource

k,

nd

Rk

s theGini

correlationetween he ource

ncome

k

and total ncome.

This

decomposition

f the Gini coefficient as a neat and

clear-cut nter-

pretation

ince t shows that

hecontribution

f

ncome sourcek to

inequal-

ity

depends

on

the nteractionf three lements:how

important

he ncome

sourceon total ncome s

(

Sk

;

how

unequally

distributedhe ncome source

is

(Gk);

and how

correlated he ncome

source and the distributionf total

income re

Rk.

Therefore,

n

income ourcethat

epresents

relative

arge

shareof total

income

ould have

a

large

effect n

inequality

s

long

as it s

unequally

dis-

tributed

that

s,

f t

has a

relatively igh

Gk

.

However,

f

Gk

s

low,

this

fac-

torwill dwarf he

ontributionf that ncome ource.

On theother

and,

f

an

income

ource s

veryunequally

distributedut s not

highly

orrelated ith

total ncome

as

in

the ase of

well-targeted

ransfer

rograms),

hen he on-

tributionf such a sourcecould n

factbecome

negative.

Stark,

aylor,

nd Yitzhaki

1986)

showed thatwith his

ype

of decom-

position

one

can estimate he

effect f a small

percentage hange n)

in

a

given

ncome source on

total

nequality holding

all other

ncome sources

constant)

hrough

he

following

xpression:

(2)

||

=

St(Gt*t-G)

or,

alternatively,

(3)

_Ak=^L_S^

This

expression

meansthat he

percent

hange

n

inequality esulting

rom

marginal ercentage

hange

n

ncome ourcek s

equal

to the nitial

hare f

income ourcek on total ncome

nequality

minus he nitial hare f

ncome

sourcek.

Gini

ecomposition

esults

Now

the

monetary

ncome

Gini coefficientsor

Mexico

are

decomposed

fol-

lowing

the

approach ust

described nd

using

the ncome sourcesdescribed

in

figure

and

tableAl. For

simplicity

f

exposition,

nstead f

applying

he



14/35

Gerardo

squivel

167

methodology

o thewhole

period

under

nalysis,

t s

applied

only

to the ur-

veys

of

1994,

2000,

and 2006.

The

descogini

Stata

command

presented

n

Lopez-Feldman

2006)

is used

in the

decomposition

xercise.

The

marginal

ffects

f the

decomposition

xercise

re shown

n

figure

.

Results

are

unequivocal:

at the national

evel,

there re three

nequality-

augmenting

nd three

nequality-reducing

ources

f ncome.

Among

hefirst

group

re

pensions,

ncome

from wn

businesses,

nd

ncome

from

roperty

rents.

Among

he econd

group

re ncome

abor

at

least since

2000),

remit-

tances, nd

transfers.

n

the

ast two

cases,

the

marginal egative

ffects

n

theGini

coefficient

ave

increased

hroughout

he

period.

Figure

7 also shows

the

marginal

ffect f

thedifferent

ncome ources

n

urban

nd rural

reas.

The

sign

of

the

marginal

ffects

f thedifferent

ncome

components

s

basically

he ame

as that bserved

t

thenational

evel.

There

are,

however,

ome

mportant

ifferences

n terms f the

relative

mportance

of

the

mpact

f some

sources.

For

example,

abor

ncome

s a

very

mportant

inequality-reducing

orce

n urban

reas but

not

n

the

rural ector

there,

t

even

augmented

nequality

n

2006).

On theother

hand,

ransfers

re a

very

importantnequality-reducingactor n rural reas butnot as importantn

urban

nes.

Finally,

note that

emittances

o not seem

to

have a

large nega-

tive

marginal

ffect

n

nequality

n

any pecific

ector,

lthough

hey

re rel-

evant

t thenational

evel.

This

apparent

aradox

s

explained

by

the

fact

hat

whiletheGini

correlation

f remittances

ith ural

monetary,

ncome

s close

to 50

percent,

hey

ave

a much

owerGini

correlation

ith

monetary

ncome

at the

national evel.

In that

ense,

remittances

ave

an effect

t the

national

level because

they

re

heavily

oncentrated

n

thebottom

alf

f the

national

income

distribution.11

herefore,

emittances

ork

s an

inequality-reducing

sourceof incomethroughherural/urbanncomegap and notthroughhe

sector-specific

ncome

distribution.

Why

abor

ncome

Has Become

an

Equalizing

ncome

Force

The results

f the

decomposition

xercise

uggest

hat ne

of the

most

mpor-

tant

qualizing

orces

n

recent

ears

n Mexico

has been

the volution

f

abor

income,

oth

n urban

reas and

n the

country

s a

whole.

n

fact,

hereduc-

tion n thetotal ontributionf abor ncometo theGinicoefficientccounts

for

almost all

of the observed

reduction

n this coefficient

hroughout

he

11.

For

more etails

n hisssue

ee,

or

xample,

squivel

nd

Huerta-Pineda

2007).



15/35

FIGURE 7.

Marginal

ffectnGini oefficient

y

ncomeource:

verall,rban,

and

Rural

exico

Source:

uthor'slaboration

ased

n

NIGH

various

ears).



16/35

Gerardo

squivel

169

1994-2006

period.

Therefore,

nderstanding

he nature f the

change

n

the

effect

f abor ncome

on

inequality,

hichwentfrom

eing

positive

n

1994

to

becomingnegative

n

2000

and 2006

(see

figure

),

is crucial to under-

standing

hewhole

dynamics

f ncome

nequality

n

Mexico

since

1994.

To

begin

with,

ote hat abor

ncome

s

basically

the

product

f

multiply-

ing

hourly

wages by

number

f hours

worked.That

being

the

case,

leaving

aside

changes

n the number

f hoursworked

long

the ncome distribution

(which

ould

have occurred

ut

probably

ot

necessarily

n

the

magnitude

r

directionhat ouldactually xplain heobserved hanges n ncome nequal-

ity),

he

only

other hannel

hrough

which abor

ncome can affect

ncome

inequality

s

through

hanges

n

wage

rates.

Therefore,

ost f the

hanges

n

this

type

of

inequality

omehow

mustbe

the outcome

of

changes

n

wage

inequality.

n some

sense,

this s a

very

fortunate

ircumstance,

ince

a link

can then

e established

etween

hisdiscussion

n income

nequality

nd

the

literature

n

wage inequality

n Mexico that

has been

written s

part

of the

debateon

the

relationship

etween

rade

nd

wages.12

Let us

look first

t the evolution

f

wage inequality

n

Mexico

in

recent

yearsby usinga standard efinitionfwage inequality ivenbythe ratioof

the

wages

of

nonproduction

orkers o

those f

production

orkers.

his ratio

is also

(grossly)

defined

s the

skilled/unskilled

age

ratio,

wherein

onpro-

duction

workers re

considered

proxy

or killed

abor nd

production

ork-

ers a

proxy

or

unskilled

abor.13

Figure

8 shows

theevolution

f

thismeasure

f

wage

inequality

n Mexi-

can

industry

or he

period

from 984

through

007.

The data

for his

graph

come

from he

Encuesta

ndustrial

Mensual

(EIM)

[Monthly

ndustrial

ur-

vey],

which

has

monthly

nd annual

data

on total

wages

paid

and

totalhours

workedn ndustry ybothproductionndnonproductionorkers. hisfig-

ure is an

updated

version

of similar

versions

published

n,

for

example,

Esquivel

and

Rodriguez-Lopez

2003)

and

Chiquiar

2008).

The

pattern

f

wage inequality

n Mexico's industrial

ector

n

figure

is

remarkably

imilar o

the volution

f

nequality

nder

hevarious

definitions

of income

thatwere

shown

before.

This

figure

hows a continuous

pward

increase

n

wage inequality

ince 1984

that

asted until

he

mid-1990s,

fol-

lowed

by

a

steady

decline since

then.

A

slight

ifference

etween

his

graph

12.

See

the bundant

eferences

o heMexican

ase hat

ppear

n

Goldberg

nd

avcnik

(2007),

survey

n

globalization

nd

nequality.

13.

This

s,

of

ourse,

gross

implification,

ince here

re

roduction

orkers

ho re

highly

killednd

onproduction

orkers

ho

re

elatively

nskilled.



17/35


18/35


19/35

172

ECONOMI

,

Fall

011

forty-six

fthe

forty-eightanufacturing

ranches. etween 1994 and

2007,

however,

he

pattern

f the skilled/unskilled

age

ratio

n

Mexico's manu-

facturingndustry

ooks somewhat ifferentnd more

heterogeneous

han

n

the

previous eriod:

most ndustries

ow show

a

slightly ecliningwage

ratio

between hese wo

years,

ut here lso are a fewbranches

n which

he

wage

ratio

s

now either he ame or

slightly

bove

its

1994

level.

On theother

and,

data on the

volution f the killed/unskilled

age

ratio

at the state

evel

show

also a

clearlydeclining

rend

n

almost

very

tate

n

Mexico

since

hemid-1990s

Esquivel2008).

In

summary,

ince

1996 there

as

been an

important

eduction

n

wage inequality

n

Mexico. This reduction as

taken

lace

not

only

t the

ndustry-wide

evel but lso in most

manufacturing

branches nd across the

country

n

manyregions

nd states.

Consequently,

a

good explanation

f labor ncome

nequality

and

of

wage inequality)

as

to be able to

explain

not

only

the

rapid

ncrease

n

wage inequality

etween

1984 and

1996

but lso the

eduction

n

wage

nequality

hat as beenobserved

since

1996.

Explaining

he

Evolution f

Wage Inequality

n Mexico

The

rapid

ncrease

n

wage inequality

hat ccurred n

Mexico between1984

and

1994

or

1996 has been

widely

documented nd studied.15 n

interesting

aspect

of this

rend

s

that ts

beginning

oincidedwith heunilateral

pening

of theMexican

economy

hat

tarted

recisely

n the

mid-1980s. he increase

in

Mexico's

wage

inequality

herefore ould be somewhat

nexpected,

on-

sidering

hatMexico has a relative

bundance f unskilled abor

at

eastfrom

theperspectivef tsmaintrade artner,heUnited tates)and that tandard

trade

heorieswould have

predicted xactly

he

opposite

pattern

that

s,

a

reduction

n

the

killed/unskilled

age

ratio;

ee

Cragg

nd

Epelbaum

1996).

As

a

consequence,

everal

ossible

hannels

most

fthem inked o the

pen-

ing

of the

economy

n

the

mid-1980s)

have been

suggested

o

explain

this

apparent aradox.

The

explanations

hathave been

proposed

to

explain

the

post-openness

increase

n

Mexico's income

nequality

an be

grossly

ivided nto wo

groups:

in

the

first,

he

xplanations

mphasize

actors

ffecting

hebottom

art

f the

15.

See,

for

xample,squivel

nd

Rodriguez

6pez

2003),

Airola ndJuhn

2005),

Robertson

2007),

costand

Montes-Rojas

2008),

hiquiar

2008),

erhoogen

2008),

nd

the eferences

ited

herein.



20/35

Gerardo

squivel

173

incomedistribution

that

s,

the

egment

hat or hemost

part

omprises

ess

skilled

nd

ess

experienced

orkers);

he econd

emphasizes

actors

ffecting

the

upperpart

f thedistribution.

n

thefirst

roup,

or

xample,

re theories

emphasizing

hereduction

n

real minimum

ages

Fairris,

opli,

and

Zepeda

2008)

as well as theories

uggesting

hat he

mid-1980s

reduction

n

tariffs

disproportionately

ffectedndustrieshat

mployedmostly

ow-skilled

work-

ers

(Hanson

and Harrison

1999).

In

the second

group,

ome

explanations

emphasize

heroleof an increase

n thedemand or

killedworkers

ssociated

withthepresenceof foreignnvestmentFeenstra nd Hanson 1997);

with

skill-biased

echnological hange Cragg

and

Epelbaum

1996;

Esquivel

and

Rodriguez-Lopez

2003);

and

with a

quality-upgradingrocess

due to an

increase n

exports

Verhoogen

2008).

Other

explanations

have

suggested

that

ducation

nequality

ould have also

played

role

Lopez-

Acevedo

2006)

or that these trends ould

indicate

only

short-run ffects

Canonero

and

Werner

002).

On

the

other

hand,

he

post-

996 reduction

n

wage inequality

n

Mexico

has been much less studied. So

far,

only

Robertson

2007)

and

Campos

(2008) haveanalyzed his rend.WhileCamposfavors n explanation ased

on

supply

actors,

obertson

uggests

hatMexico's

manufacturing

orkers

are now

complements

f

rather han substitutes or U.S.

workers nd that

there as been an

important

xpansion

f

assembly

ctivities

n

Mexico

that

has increased

hedemandfor ess

skilledworkers.

Of

course,

many

f the

proposed

xplanations

or he

pre-NAFTA

ncrease

in

wage inequality

n

Mexico

are not

mutually

xclusive,

nd

they

ould

in

factbe at least

partially

orrect.

However,

t is also true

hatmost of them

cannot

explain

the

subsequent

eduction

n

wage inequality

hathas been

observed since 1996. Therefore heseexplanations re either ncorrect r

incomplete,

ince there

ould be

manyunderlying

orces

cting

n

different

directions.

hat is

why

Robertson

2007)

noted thatthe

pattern

f

wage

inequality

n Mexico is

puzzling

because no

singletheory

ould

explain

the

evolution

f

wage inequality

efore

nd afterNAFTA.16

Although

t is not

the

objective

of this

paper

to

identify

r to establish

which

xplanation

if

any)

s

correct,

t east some of them ould

be ruled ut

16. There

re,

owever,

ome entativeheoretical

xplanations

or uch

pattern.

or

example,tolia2007) uggestedhat,nderertainircumstances,venf he tandardre-

dictionromHeckscher-Ohlin-Samuelson

odel orkss

predicted

n he

ong

un,

here

ay

be ome hort-run

or

ransitory)

ffectsf radeiberalization

hatead o differentutcome

because f wo actors:

irst,

n

symmetry

n he ontractionnd

xpansion

f ome ectors

and, econd,

he

apital-skillomplementarity

n

production.



21/35

174 ECONOMI

,

Fall 011

by

ooking

t some

wage

data

provided y Campos

2008).

The next wo

fig-

ures show

the mean

og wage

of male workers

n

Mexico

for elected

years

and fordifferent

ombinations f education

nd

years

of

experience.

Work-

ers reclassified

ccording

o the

evel ofeducation chieved

less

that ower-

secondary,

ower-secondary,pper-secondary,

nd

college

education)

nd to

the number f

years

of work

experience

less

or more

than

wenty ears

of

experience).

The

upperpart

f

figure

0

showsdata for he

years

1989, 1994,

and 1996

and the ower

part

shows information

or

1996

and 2006.

The first

igure

shows

an

interesting

esult: etween1989

and

1994,

mostof the

changes

n

the

wage

distribution

n Mexico occurred

n

the

upper

ail of thedistribution.

That

s,

the ncrease

n

wage inequality

n

those

years

annot

e

explained

by

a reduction

n

the

wages

of ow-skilled r

nexperienced

orkers;nstead,

he

increase an be

explainedonlyby

an increase

n

the

wages

of

highly

killed

or

highly xperienced

workers. his result

asically

rules ut

ny xplanation

based on

changes

n

the ower tail of the

wage

distribution,

uch as those

based on a

falling

eal minimum

wage

or on a biased

openness

of unskilled

labor-intensive

ndustries. his

figure

lso shows the

widespreadnegative

effects f thefinancial risis

of

1994-95,

which

reduced,

lmost

proportion-

ally,

he eal

wages

of

all

types

fworkers

n

Mexico between 994

and

1996.

The bottom

art

of

figure

0 shows the

wage

distribution

n

Mexico for

1996

and 2006. Unlike

figure

,

thisone shows thatmostof the

changes

n

the

wage

distributionook

place

in

the ower ail.That

s,

workerswith ower

levels of education nd/or ewer

years

of work

experience

had the

argest

increases n their

verage wages,

and that

xplains

the reduction

n

wage

inequality

hat as been observed ince

1996.

This also

suggests

hat

ny

on-

vincing tory f thepost-NAFTAreductionnwage inequality as toexplain

the ncrease

n

the

wages

of

ow-skilled/less

xperienced

workers ather han

thereduction

n the

wages

of

high-skilled/morexperienced

workers.

The

previous

esults

onfirmhe ntuition hat here s no

singleexplana-

tion

for he

evolution

f

wage inequality

n

Mexico since

1984.

Indeed,

the

fact hat

he

1984-94

increase

n

wage inequality

s associatedwith

hanges

in the

upper

ail of thedistribution hilethe

post-NAFTA

reductionn

wage

inequality

s associated

mostly

with

hanges

n

thebottom

ail

suggests

hat

there re at east two

eading

forces t

play.

n

thefirst

ase,

as

discussed,

he

only xplanationshat eemtobecompatiblewith he bserved rend re those

suggesting

he

presence

of skill-biased

echnological hange,

ither

xoge-

nous

change Cragg

and

Epelbaum

1996

and

Esquivel

and

Rodriguez-Lopez

2003)

or

endogenous hange resulting

rom he

presence

of multinational



22/35

Gerardo

squivel

175

FIGURE 10. Mean

ogWage

fMale

Workers

y

ducationnd

xperience,

elect ears

Source:uthor'slaboration

asedn

ampos

2008).



23/35

176 ECONOMI

,

Fall 011

firms

Feenstra

nd Hanson

1997)

inMexico and/or

y

the

upgrading

f the

quality

f

exporting

irms

Verhoogen

008).

For the

post-NAFTA

period

here re at

east

three

ossible explanations,

two of whichhave

already

been mentioned nd are

not

mutually

xclusive:

an increase

n

the

supply

of

relatively

killed

workers

Campos

2008)

and

an

increase

n the demandforunskilled abor

resulting

rom n

expansion

of

assembly

ctivities

n

Mexico's

manufacturing

ector

Robertson 007).

Either f thetwo

effects ould

explain

the

reduction

n the

killed-wage

re-

mium bserved

n

the data.

A

third

xplanation

hat s also

compatible

with

the

previous

wo

s

that f

a

standard eckscher-Ohlinffect

n a

country

uch

as Mexico

in

whichunskilled abor s abundant

Chiquiar

2008).

This

effect

could

be the

ate outcome

f

trade iberalization

uggested y

Canonero nd

Werner

2002)

and

already

modeled

by

Atolia

(2007)

or,

alternatively,

n

underlying

ffect hat id

notshow

up

in

the

data

before ue to the

presence

of a

stronger

orce,

uch as a skill-biased

echnological

hange

s

previously

hypothesized y

Esquivel

and

Rodrfguez-L6pez

2003).

A

much more

detailed and

rigorous nalysis

s needed to discriminate

among

hese lternative

ypotheses. owever,

t s

possible

to

move

forward

by

analyzing

whetherome

of

these

hypotheses

re

borne

ut

by

thedata.

Fig-

ure

11

shows he

omposition

fMexico's workforceetween

989

and 2006

according

o the evels of education nd

experience

efined bove. This com-

position

bviously

eflectshe

nteractionf

both

upply

nd demand actors.

In

general,

he

figure

hows

that

hroughout

he

period

therewas a

large

reduction

n

the hare fthe east skilled nd

east

experienced

workers

those

with ess than

econdary

ducation)

nd an increase

n

the hares

f

theother

types

of workers.

he most dramatic

hanges,

however,

ook

place

in the

shareof workerswith ess thansecondary ducation. n fact,thisgroup,

which ccounted or lmost

5

percent

f theworkforce

n

1989,

represented

only

bout one-third f the workforce

y

2006,

a reduction f about

20

per-

centage oints

n

a

seventeen-yearpan.

Thatreduction as

compensated

or

by

increases

n

the shares

of

most

of

the other

groups

of workers. hese

trends,

whichwere

alreadypresent

etween

1989

and

1994,

accelerated

n

the

post-NAFTAperiod.

These results herefore

uggest

hat t east

part

f

the

relative ncrease

n

the

wages

of the ow-skilled/less

xperienced

workers

n

Mexico is associ-

ated with hechange nthecomposition ftheworkforcend, nparticular,

with

reduction

n

the number f unskilledworkers ather han n increase

in

the

upply

f skilledworkers. f

course,

his

result

s not at

all

incompat-

ible

with he

hypothesis

hat he

demand

for

unskilledworkers

ncreased,

s



24/35

Gerardo

squivel

177

FIGURE 11. Workforce

omposition

y

ducationnd

xperience,

989-2006

Source:uthor'slaborationased

n

ampos

2008).

suggested

n Robertson

2007),

but,

by

itself,

he result annot

explain

the

simultaneousncrease n therelative

wages

and reductionn the

participation

of these

workers

n Mexico's totalworkforce.

Finally,figure

2 shows some results hat re

compatible

withthe

view

that mphasizesthe role of thecomposition f the abor force.The graph

shows on the x-axis the

change

between 1996 and 2006

in the share of the

eight

different

roups

of workers

ccording

to their evels of education

and

experience

s defined bove.

Participation

n Mexico's workforce as

declined n three

groups,

which

correspond

o the east educated and less

experienced

workers. he

y-axis

ndicates he

verage hange

n the

og wage

of male and femaleworkers hat

elong

to each of the

groups.

As

expected,

the

groups

whose shareshave diminished n the

past

decade are those that

have had the

argest

ncrease n

wages.

Notice

that he ncreases

n the

wages

of these workers re close to 20 percent and in some cases even close to

30

percent throughout

he

en-year eriod.

On the ther

and,

he

ategories

of workerswhose shares n Mexico's workforce ave increased

the

more

educated/more

xperienced

workers)

ave tended o have either

tagnant

r



25/35

178

ECONOMIA,

all 011

FIGURE 12.

Change

n haref otalWorkers

y

ducationnd

xperience

ersus

hange

in

ogWage y

Gender,

996-2006

Source:uthor'slaborationasedn

ampos

2008).

even

decreasingwages

since

1996.

This

graph

hen

upports

he

hypothesis

that he

hange

n the

omposition

fMexico's workforces the

eading

force

in the

reduction

n

wage

and labor ncome

nequality

n

Mexico

in

the

post-

NAFTA period.

Summary

nd Conclusions

This

paper

reviews he

pattern

f income

nequality

n Mexico since

1994,

when NAFTA went nto

effect.

Using

information

rom

nationally epre-

sentativehousehold

surveys,

t shows that there has been an

important

reduction n income

inequality

ince

1994

and thatthis trendhas almost

reversed ncome nequality o the evels thatwere observedbefore herapid

increase n

inequality

hat ook

place

between

1984

and 1994.

As shown

by

a Gini

decomposition nalysis by

income

source,

abor

income, remittances,

nd

public

transfers

mainly through

he

Progresa/



26/35

Gerardo

squivel

179

Oportunidades rogram)

ave all

played

an

important

ole n this

qualizing

process.

n

particular,

he

paper

shows that abor ncome

has become a

very

importantqualizing

force

n

urban reas

in

Mexico,

while

public

transfers

have been

especially

important

n

reducing nequality

n

the

rural sector.

Remittances,

n the

other

hand,

have been a national

nequality-reducing

source of ncome since 1994.

The

paper

also

provides

ome evidence

suggesting

hat heforces hat ed

to a

sharp

ncrease

n

wage inequality

cross all industries

n

Mexico

during

the

1980s

and

early

1990s

are no

longer operating.

n

fact, generalized

reduction

n

wage

inequality

cross

ndustries nd

regions

n

Mexico

is now

observed,

uggesting

he

growing

elevance

f other lements

n

this rend.

In

general,

believe that Mexico

is now

beginning

o

experience

the

inequality-reducing

ffects f

having

more ducatedworkforcend

of trad-

ing

with

more

kill-abundant

ountries.

his

equalizing

effect eems

to have

been

postponed y

a skill-biased

echnological

hange

either

xogenous

or

endogenous)

r

by

an

endogenous

echnological pgrading

hat,

n

any

case,

now seems

to have ended.

This fact nd an ambitious

nd

widespread

ocial

program ocusedon poorruralhouseholds eemto be the mainexplanatory

factors

n

the

harp

eduction

n

inequality

hathas been observed

n Mexico

in recent

ears.

Appendix

TABLE A Households

hat eceivencome

romourcestherhan abor

ncome

Percentf otalouseholds

Sourcefncome 1992 1994 1996 1998 2000 2002 2004 2005 2006

Ownusiness

43.8 42.7 43.3 43.2

41.1 41.9 38.1

39.1 42.0

Property

ent

4.4 3.5 3.7 3.5

3.1 4.0 4.7

4.0 4.6

Financialncome

25.9 15.2

22.9 19.1 19.1

19.3 20.2 18.1

23.5

Transfer

23.5 23.8

29.0 31.2 34.0 38.6 42.0

41.3 45.5

Remittance

3.7

3.4 5.3 5.3 5.3

5.7 5.6 6.0

7.0

Pension

8.8

8.1 8.2 9.5 10.0

10.0 11.8

11.4 11.9

Publicnd

rivate

ransfers

3.6 14.5

18.7 19.6 23.1 28.4 31.2

30.5 34.6

Procampo

... 1.2

4.6 2.8 2.6 5.6

4.6 3.5

4.0

Progresa/Oportunidades

.a.

n.a. n.a. n.a. n.a.

12.3 13.4 13.5

14.8

Source:uthor'sstimatesasedn

NIGH

various

ears).



27/35

Comment

Guillermo

Cruces:

The

paper y

Gerardo

squivel

n this dition fEconomia

presents

thorough

ccountof

inequality

rends

n Mexico since

the mid-

1990s.

Papers

uch s

this

onstitute

fundamentalxtension

f thediscussion

of

aggregate egional

rends

uch as that

rovided

y Gasparini,

ruces,

nd

Tornarolli

201 1),

and

they resent

n

opportunity

o

discuss

n

depth

he

fac-

tors

nderlying

he

volution

f

nequality

t the

ountry

evel.

dentifying

he

fundamental

auses of the volution

f a national

ncomedistribution

s never

aneasyfeat, nd the uthormust e laudedfor roviding coherentnd com-

pact

discussion f

an eventful

eriod

n

Mexico

that ncluded

major

ransfor-

mations

with

potentiallyarge

effects

n the ncome

distribution,

ncluding

macroeconomic

rises,

market-oriented

tructural

eforms,

he

opening

f the

economy

o nternational

apital

flows,

free

rade

greement

ith

heworld's

largest conomy, echnological

hange,

ncreased

globalization, political

transition,

nd even

an armed

ndigenous

prising.

This comment xamines ome

evidenceon distributional

hanges

n

terms

of

poverty

eduction o

complement

he article's

main focus on

inequality

and then iscussesthe uthor's onclusionsnterms f a structuralhange n

inequality

rends

n

Mexico

in

light

of the effects f the

nternationalco-

nomic risis hat tarted

n

2007.

Finally,

t

suggests

ome avenues

for urther

research.

The first

oint

f

this omment oncerns he

evolution f

poverty

verthe

period

f time overed

by

the rticle.National

ggregate

overty

ates

or he

US$2.50

and

US$4.00

purchasing

ower parity

PPP)

international

overty

lines re

presented

n

figure

for he

period

1989-2008

and also

for heurban

and rural

opulations

or he

US$2.50

poverty

ine.This

figure rovides

nfor-

mation n a dimensionfdistributionalhange hat omplementshe horough

discussion

f

the evolution

f

inequality

n the

paper.

The

figure

ndicates

Guillermoruces

s with

EDLAS-UNLP

nd ONICET.

180



28/35

Gerardo

squivel

181

FIGURE 1.

Poverty

ate or ationalndRural/Urban

opulations,

exico,

989-2008

Source:EDLASnd orldank

2011).

asednMexico'sNEGIiannual

urvey,

ncuestaacionale

ngresos

Gastose os

Hogares

ENIGH).

moderate all

in

poverty

n

the

early

1990s,

followed

by

a

large

increase

between1994 and 1996

that an be

attributed

ainly

o the macroeconomic

crisis f 1995.

From

1996

until

006,

there s

a

continuous all

n the

poverty

ratespresentedn thefigure.n fact, hisevidence ndicates hat he notable

results rom

igure

in

the

paper,

which how substantial

rowth

n

ncome t

the

bottom f thedistribution

n the

period

1994-2006,

could be even

arger

f

computed sing

he

post-crisis ear

1996

as a basis.

This discussion llustrates furtherimension f the

distributional

ynam-

ics documentedn

figure

of the

paper:

thereductionn

nequality

n Mexico

was

accompanied y

a substantial all n the

proportion

f the

population

iv-

ing

underdifferent

overty

ines and reflects he ncrease n standards f

living

nd the

pro-poor

ature f the

growth rocess

n theMexican

economy

over theperiodunder tudy.At thesame time, hisevidence also indicates

that here s still

ample

room for

mprovement:

bout 15 and 30

percent

f

the

population

still lived under the

US$2.50

and

US$4.00

poverty

ines,

respectively,

n

2008,

and

major egional nequalities

re evidentn the

poverty



29/35

182

ECONOMIA,

all 011

FIGURE 2. Laborncome

overty

rendndex

nd

early

DP rowthate1

Source:

0NEVAL(2011).1heLabor

ncome

overty

rendndexndicateshe

roportion

fndividuals

ho

annotoverheostfbask

foodasketithheiraborncome.ts asednMexico'sNEGI

uarterlyurvey,

hencuestaationale

cupaddnmpleo

ENOE).

a. Fourth

uarter

ith

espect

o ourth

uarter

fhe

reviousear;

aseourth

uarter

f 0051

levels n rural

reas,

which re about wicethenational

ggregate.

While the

paper

discusses urban-rural

ifferentials,

roviding

more evidence on their

nature nd discussing heir onsequences n terms f policy are certainly

worthwhile irections orfurtheresearch.

inally,figure

reveals a small

but

significant

ncrease n

poverty

etween 006 and

2008;

the

mplications

of this

hange

nd its

underlying

actors re discussednext.

The second

point

f this omment efers o the

ustainability

f thedistri-

butional

hangeprocess

documentedn the

paper

nd to ts

vulnerability

ith

respect

o

aggregate

hocks.The 2010 nationalhousehold

urvey

ENIGH)

was not vailable at the ime his ssue went o

press, mplying

hatno

aggre-

gate poverty

ates

comparable

o those n

figure

were available.

Figure

2

presentsn alternative easure, heLabor ncomePoverty rend ndex con--

structed

y

the

Consejo

Nacional

de

Evaluaci6n de

la Polftica e Desarrollo

Social

[National

Council for Evaluation of Social

Development Policy]

(CONEVAL)

and

based on

INEGI'

s

quarterly

urvey,

heEncuestaNacional



30/35

Gerardo

squivel

183

de

Ocupacion

y Empleo

[National

Survey

of

Occupation

nd

Employment]

(ENOE).

The

index,

which ndicates

he

proportion

f ndividualswho can-

not cover

the

cost

of a basic

food basket with heir abor

ncome,

has been

normalized o

1

forthe fourth

uarter

f

2005.

The evidence

n

the

figure

illustrates

series

of

factors.

irst,

he izable

growth

n

GDP

in

2005, 2006,

and 2007

(between

and

4

percent

ach

year)

did nottranslate

nto ubstan-

tial reductions

n

aggregatepoverty.

n

fact,

therewas a

relatively

arge

increase

n

urban

poverty

atesfor

2005-07,

which can be attributed

o the

increase nthepriceof foodrelated o anupward rendncommodity rices

and

growth

n the

global

economyduring

hat

eriod.

Second,

the

figure

ot

only provides

furthervidence on the ncrease

n

aggregate overty

etween

006 and 2008 but also

illustrates he

very arge

distributional

mpact

of the nternational

conomic

crisis,

withthe

poverty

rate

ncreasing

urther

n

the2008-10

period.

That ncrease

was seen

even for

therural

population,

which

was

relatively pared

from he 2005-07

upward

trend.

The

large

ncrease

n

poverty

or 2008-10 is all

the more

worrying

when

considering

hat he

nternationalrisis had

only

a

relatively

modest

effectat leastbyLatinAmerican tandards) n domesticgrowth ates,with

reductions

f about

1

and

2

percent

f

GDP

for 008 and

2009,

respectively.

Moreover,

he

reversal

n

this

trend etween2009

and

2010,

with

yearly

growth

ateof about

4.5

percent,

id nottranslate

nto further

eduction

n

poverty:

he

Labor Income

Poverty

Trend ndex increased

although

only

slightly)

ver

that

eriod.

The evidence

in

figure

1

points

toward a more

fundamental

uestion

related

o thenature

nd the

imits f the

process

of distributional

hange

doc-

umented

y

the

Esquivel

paper

for he

period

1994-2006.

While

inequality

andpoverty ellsubstantiallyvertheperiod, he reversal n growth rends

resulted

n a

large

increase

n

aggregate

poverty

evels

and,

apparently,

change

in the mechanism

inkinggrowth

with

poverty

eduction,

s wit-

nessed

by

the

tagnant

overty

evels of 2010.

Moreover,

heSEDLAC

data-

base

(CEDLAS

and World

Bank

2011),

on which

figure

in

the

paper

is

based,

indicates n

increase

of 0.7

in

the Gini

coefficient

etween2006

and

2008

(although

he

change

s not

statisticallyignificant

t standard

evels).

While

further

ains

n distributional

erms re

always

harder

o

accomplish

t

lower

poverty

nd

nequality

evels,

the

mpact

f the

nternational

conomic

crisis ouldprovide frameworkoadjust hepolicies mplementedver the

previous

period, specially

n terms f the

breadth,

epth,

nd

modality

f

safety

ets nd also

in

terms

f the

mplications

f the

productive

tructure

f

the

economy

nd ts

inks

with

major

economies.



31/35

184 ECONOMI

,

Fall 011

TABLE

1

Changes

n he killed

age

remiumndRelative

upply

f killedndUnskilled

Workers

ndRelative

emand,

exico,

989-2008

Relative Relative Relative

Wage

Relative demand demand

demand

Period

premium supply (a=2) (c=3)

(o=4)

1989-2000 1.8 3.6

7.2 9 10.8

2000-08

-2.

Paper Income Inequality Dynamics Since NAFTA.pdf

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