Dynamics of Labor Market Earnings in Urban Mexico, 1987-2002

This paper studies short-run individual earnings mobility in urban Mexico from 1987 to 2002. It analyzes whether initially advantaged individuals experience more positive earnings mobility than the initially disadvantaged ones. It also studies whether earnings converge over time to their conditional mean, and what is the impact of socioeconomic characteristics on earnings mobility. The results show that while there is a great amount of convergence in the earnings of rich and poor over a year, this convergence is mostly due to transitory adjustments in earnings, i.e. it is due to earnings converging to their own conditional mean. Individuals with characteristics that give them a more permanent advantage in the labor markets (like high levels of education, being a male, etc.) usually keep their high earnings over a year. The main exception to this finding occurred in the aftermath of the 1994 Peso crisis when everybody experienced proportional earnings losses, and hence the permanently advantaged individuals experienced greater losses in absolute terms. Holding everything else constant, having high levels of education, being a male, becoming a formal sector selfemployed, and living in cities in the US Border and in the North of the country is usually associated positive mobility. On the contrary, transitions into informal wage work and living in the Center and South of the country brings more negative conditional mobility.