IDEAS home Printed from https://ideas.repec.org/p/wbk/wbrwps/1524.html
   My bibliography  Save this paper

Employment and wage effects of trade liberalization : the case of Mexican manufacturing

Author

Listed:
  • Revenga, Ana

Abstract

In 1985, after decades of an import-substitution industrial strategy, Mexico initiated a radical liberalization of its external sector. Between 1985 and 1988, import licensing requirements were scaled back to a quarter of earlier levels, reference prices were removed, and tariff rates on most products were substantially reduced. By 1989, Mexico was one of the most open economies in the developing world. Adjusting to trade liberalization required the reallocation of resources between sectors and entailed substantial dislocation of workers. The author analyzes how Mexico's trade liberalization (1985-87) affected employment and wages in indusry, focusing on how it affected average employment and earnings rather than on the link between trade and relative wages. She examines the tradeoff between wage and employment adjustment, identifies which labor groups benefited more from liberalization, and tries to associate changes in employment and wages directly with measures of change in trade protection, rather than link them to changes in imports and exports (which is more common). The author also finds that reductions in quota coverage and tariff levels are associated with moderate reductions in firm-level employment. A 10-point reduction in tariff levels (between 1985 and 1990) is associated with a 2- to 3- percent decline in employment in Mexico. Changes in quota average appear to have no discernible effect on wages, but reduction in tariff levels are associated with increases in average wages. This seems to reflect improved productivity in the reformed industries, which may be related to a shift toward the use of more skilled workers. There seems to have been a slight shift in the skill mix in favor of nonproduction workers. This was paralleled by a sharper increase in the wage differential between skilled and unskilled workers. The wages and employment of skilled production workers were significantly more responsive to changes in protection levels than those of nonproduction workers - perhaps partly because production workers were more heavily concentrated in the industries in which protection levels were greatly reduced.

Suggested Citation

  • Revenga, Ana, 1995. "Employment and wage effects of trade liberalization : the case of Mexican manufacturing," Policy Research Working Paper Series 1524, The World Bank.
    • Handle: RePEc:wbk:wbrwps:1524
    as

    Download full text from publisher

    File URL: http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/1995/10/01/000009265_3961019150349/Rendered/PDF/multi0page.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Layard, Richard & Nickell, Stephen & Jackman, Richard, 2005. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780199279173, Decembrie.
    2. Katharine G. Abraham & Susan N. Houseman, 1994. "Does Employment Protection Inhibit Labor Market Flexibility? Lessons from Germany, France, and Belgium," NBER Chapters, in: Social Protection versus Economic Flexibility: Is There a Trade-Off?, pages 59-94, National Bureau of Economic Research, Inc.
    3. Bentolila, Samuel & Dolado, Juan J., 1993. "Who Are the Insiders? Wage Setting in Spanish Manufacturing Firms," CEPR Discussion Papers 754, C.E.P.R. Discussion Papers.
    4. Ana R. de Lamo & Juan J. Dolado, 1993. "Un modelo del mercado de trabajo y la restricción de oferta en la economía española," Investigaciones Economicas, Fundación SEPI, vol. 17(1), pages 87-118, January.
    5. Hanson, G.H. & Harrison, A., 1995. "Trade, Technology and Wage Inequality," Papers 95-20, Columbia - Graduate School of Business.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Independent Evaluation Group, 2006. "Assessing World Bank Support for Trade, 1987-2004 : An IEG Evaluation," World Bank Publications - Books, The World Bank Group, number 6966.
    2. Mayer-Foulkes, David, 2008. "The Human Development Trap in Mexico," World Development, Elsevier, vol. 36(5), pages 775-796, May.
    3. Munshi, Farzana, 2006. "Does openness reduce wage inequality in developing countries? A panel data analysis," Working Papers in Economics 241, University of Gothenburg, Department of Economics, revised 06 Feb 2008.
    4. José Palma, 2015. "Globalizing Inequality: ‘Centrifugal’ and ‘Centripetal’ Forces at Work," Working Papers id:7199, eSocialSciences.
    5. Lopez-Acevedo, Gladys, 2002. "Technology and firm performance in Mexico," Policy Research Working Paper Series 2778, The World Bank.
    6. Guzin Emel Akkus, 2016. "The Effects of Import Competition on Employment and Wages in the Manufacturing Industry of Turkey," Eurasian Journal of Social Sciences, Eurasian Publications, vol. 4(1), pages 50-58.
    7. Pradhan, Jaya Prakash, 2005. "How Do Trade, Foreign Investment, and Technology Affect Employment Patterns in Organized Indian Manufacturing?," MPRA Paper 19010, University Library of Munich, Germany.
    8. Kanbur, Ravi & Lustig, Nora, 1999. "Why is Inequality Back on the Agenda?," Working Papers 127690, Cornell University, Department of Applied Economics and Management.
    9. José Gabriel Palma, 2011. "National Inequality in the Era of Globalisation: What do Recent Data Tell Us?," Chapters, in: Jonathan Michie (ed.), The Handbook of Globalisation, Second Edition, chapter 7, Edward Elgar Publishing.
    10. Márquez, Gustavo & Pagés, Carmen, 1997. "Trade and Employment: Evidence from Latin America and the Caribbean," IDB Publications (Working Papers) 6064, Inter-American Development Bank.
    11. Lopez Julio, 2002. "Modernization, Heterogeneity and Employment in Mexico," International Review of Applied Economics, Taylor & Francis Journals, vol. 16(2), pages 227-242.
    12. Bacchetta, Marc & Jansen, Marion, 2003. "Adjusting to trade liberalization: The role of policy, institutions and WTO Disciplines," WTO Special Studies, World Trade Organization (WTO), Economic Research and Statistics Division, volume 7, number 7.
    13. Carmen Pagés-Serra & Gustavo Márquez, 1998. "Comercio y empleo: elementos de juicio de América Latina y el Caribe," Research Department Publications 4109, Inter-American Development Bank, Research Department.
    14. Arturo Pérez Mendoza, 2005. "Liberalización comercial y la creación y destrucción de empleo," Estudios Económicos, El Colegio de México, Centro de Estudios Económicos, vol. 20(1), pages 79-108.
    15. Suryahadi, A. & Chen, P. & Tyers, R., 1999. "Openness, Technological Change and Labor Demand in Pre-Crisis Indonesia," Papers 377, Australian National University - Department of Economics.
    16. Beker, Victor A., 2012. "A case study on trade liberalization: Argentina in the 1990s," Economics Discussion Papers 2012-3, Kiel Institute for the World Economy (IfW Kiel).
    17. José Gabriel Palma, 2006. "Globalizing Inequality: ‘Centrifugal’ and ‘Centripetal’ Forces at Work," Working Papers 35, United Nations, Department of Economics and Social Affairs.
    18. Richard B. Freeman, 2004. "Trade Wars: The Exaggerated Impact of Trade in Economic Debate," The World Economy, Wiley Blackwell, vol. 27(1), pages 1-23, January.
    19. Norman V. Loayza & Luis Servén, 2010. "Business Regulation and Economic Performance," World Bank Publications - Books, The World Bank Group, number 2554.
    20. Benjamin Aleman-Castilla, 2006. "The Effect of Trade Liberalization on Informality and Wages: Evidence from Mexico," CEP Discussion Papers dp0763, Centre for Economic Performance, LSE.
    21. Lopez-Acevedo, Gladys & Tinajero, Monica & Rubio, Marcela, 2005. "Mexico : human capital effects on wages and productivity," Policy Research Working Paper Series 3791, The World Bank.
    22. Lopez-Acevedo, Gladys, 2003. "Wages and productivity in Mexican manufacturing," Policy Research Working Paper Series 2964, The World Bank.
    23. Jaime Ros & Nora Claudia Lustig, 2000. "Trade and Financial Liberalization with Volatile Capital Inflows: Macroeconomic Consequences and Social Impacts in Mexico during the 1990s," SCEPA working paper series. 2000-08, Schwartz Center for Economic Policy Analysis (SCEPA), The New School.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Samuel Bentolila & Juan F. Jimeno, "undated". "Spanish Unemployment: The End of the Wild Ride?," Working Papers 2003-10, FEDEA.
    2. repec:eee:labchp:v:3:y:1999:i:pc:p:2985-3028 is not listed on IDEAS
    3. C. A. de Kam & J. de Haan & C. Giles & A. Manresa & E. Berenguer & S. Calonge & J. Merz, 1996. "Who pays the taxes?," FFB-Discussionpaper 18, Research Institute on Professions (Forschungsinstitut Freie Berufe (FFB)), LEUPHANA University Lüneburg.
      • de Kam, C. A. & de Haan, J. & Giles, C. & Manresa, A. & Berenguer, E. & Calonge, S., 1996. "Who pays the taxes?," MPRA Paper 7146, University Library of Munich, Germany.
    4. David R. Howell & Margaret Duncan & Bennett Harrison, 1998. "Low Wages in the US and High Unemployment in Europe: A Critical Assessment of the Conventional Wisdom," SCEPA working paper series. 1998-01, Schwartz Center for Economic Policy Analysis (SCEPA), The New School, revised Aug 1998.
    5. Dionisio Ramirez & Gabriel Rodr¨ªguez, 2014. "Do Labor Reforms in Spain Have an Effect on the Equilibrium Unemployment Rate?," International Journal of Social Science Studies, Redfame publishing, vol. 2(1), pages 105-120, January.
    6. Rafael Muñoz de Bustillo Llorente, 2002. "Spain and the Neoliberal Paradigm," SCEPA working paper series. 2002-02, Schwartz Center for Economic Policy Analysis (SCEPA), The New School.
    7. Dube Arindrajit & Reddy Sanjay G., 2014. "Threat Effects and Trade: Wage Discipline through Product Market Competition," Journal of Globalization and Development, De Gruyter, vol. 4(2), pages 213-252, March.
    8. Machiel van Dijk & Machiel Mulder, 2005. "Regulation of telecommunication and deployment of broadband," CPB Memorandum 131.rdf, CPB Netherlands Bureau for Economic Policy Analysis.
    9. Coen N. Teulings & Nikolay Zubanov, 2014. "Is Economic Recovery A Myth? Robust Estimation Of Impulse Responses," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 29(3), pages 497-514, April.
    10. Ángel Estrada & Ignacio Hernando & J. David López-Salido, 2000. "Measuring the NAIRU in the Spanish Economy," Working Papers 0009, Banco de España.
    11. Michelle Gilmartin & David Learmouth & J Kim Swales & Peter McGregor & Karen Turner, 2013. "Regional Policy Spillovers: The National Impact of Demand-Side Policy in an Interregional Model of the UK Economy," Environment and Planning A, , vol. 45(4), pages 814-834, April.
    12. Chéron, Arnaud & Hairault, Jean-Olivier & Langot, François, 2004. "Labor Market Institutions and the Employment-Productivity Trade-Off: A Wage Posting Approach," IZA Discussion Papers 1364, Institute of Labor Economics (IZA).
    13. Sergio Destefanis & Matteo Fragetta & Giuseppe Mastromatteo & Nazzareno Ruggiero, 2020. "The Beveridge curve in the OECD before and after the great recession," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 10(3), pages 411-436, September.
    14. Milen Velev, 2015. "A research on the relationship between the unemployment rate and the inflation rate in Bulgaria," Economic Thought journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 1, pages 40-59,60-79.
    15. Engelbert Stockhammer & Simon Sturn, 2012. "The impact of monetary policy on unemployment hysteresis," Applied Economics, Taylor & Francis Journals, vol. 44(21), pages 2743-2756, July.
    16. Laurence M. Ball & Niamh Sheridan, 2004. "Does Inflation Targeting Matter?," NBER Chapters, in: The Inflation-Targeting Debate, pages 249-276, National Bureau of Economic Research, Inc.
    17. Kee, Hiau Looi & Hoon, Hian Teck, 2005. "Trade, capital accumulation and structural unemployment: an empirical study of the Singapore economy," Journal of Development Economics, Elsevier, vol. 77(1), pages 125-152, June.
    18. Christopher A. Pissarides, 2003. "Unemployment in Britain: A European Success Story," CESifo Working Paper Series 981, CESifo.
    19. Raddatz, Guido, 2015. "Mehr Arbeit wagen," Argumente zur Marktwirtschaft und Politik 129, Stiftung Marktwirtschaft / The Market Economy Foundation, Berlin.
    20. Carlo Altavilla & Floro E. Caroleo, 2006. "Evaluating the Dynamic Effects of Active Labour Policies in Italy," LABOUR, CEIS, vol. 20(2), pages 349-382, June.
    21. Galiani, Sebastian & Lamarche, Carlos & Porto, Alberto & Sosa-Escudero, Walter, 2005. "Persistence and regional disparities in unemployment (Argentina 1980-1997)," Regional Science and Urban Economics, Elsevier, vol. 35(4), pages 375-394, July.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wbk:wbrwps:1524. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Roula I. Yazigi (email available below). General contact details of provider: https://edirc.repec.org/data/dvewbus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.