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The Premium for Skills in LDCs: Evidence from Mexico

Author

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  • Michael Ian Cragg

    (Department of Economics, Columbia University)

  • Mario Epelbaum

    (Centro de Investigacion Economica (CIE), Instituto Tecnologico Autonomo de Mexico (ITAM))

Abstract

During the 1987-1993 period, all education-experience skill classes in Mexico have experienced significant employment and real wage growth. This growth was accompanied by a large increase in wage dispersion within and across skill classes. While shifts in labor supply are unlikely to explain the changing wage and employment patterns, in this growing economy supply and demand elasticities appear to be an important factor. Still we find that it is difficult to rationalize the relative wage changes without considering a disproportionate increase in the demand for skilled labor. We develop a test of whether the observed data by industry is consistent with a production function based upon a labor aggregator. We reject this hypothesis and thus argue that some labor is more complementary with capital and that the wage changes may be a function of cheaper or more productive capital (skill biased technological change). The rising relative demand for skilled workers in Mexico during a period of increased trade with the U.S. is evidence of the weakness of the Heckscher-Olin-Samuelson predictions.

Suggested Citation

  • Michael Ian Cragg & Mario Epelbaum, 1995. "The Premium for Skills in LDCs: Evidence from Mexico," Working Papers 9505, Centro de Investigacion Economica, ITAM.
    • Handle: RePEc:cie:wpaper:9505
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    Cited by:

    1. Gordon H. Hanson & Ann Harrison, 1995. "Trade, Technology, and Wage Inequality," NBER Working Papers 5110, National Bureau of Economic Research, Inc.
    2. James R. Markusen & Anthony J. Venables, 1996. "Multinational Production, Skilled Labor and Real Wages," NBER Working Papers 5483, National Bureau of Economic Research, Inc.

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