What Has Happened to Wages in Mexico since NAFTA?
Implications for Hemispheric Free Trade

February 2003

Gordon H. Hanson
University of California, San Diego and NBER

Abstract. In this paper, I examine the impacts of trade and investment liberalization on
the wage structure of Mexico. Part one of the paper surveys recent literature on thelabor- market consequences of Mexico’s economic reforms in the 1980’s. Mexico’s
policy reforms appear to have raised the demand for skill in the country, reduced rents inindustries that prior to reform paid their workers high wages, and raised the premium
paid to workers in states along the U.S. border. These changes have resulted in an
increase in wage dispersion in the country. Part two of the paper examines changes in
Mexico’s wage structure during the 1990’s. In the last decade, Mexico has experienced
rising returns to skill, which mirror closely wage movements in the United States. Thereis, however, little evidence of wage convergence between the two countries. Regional
wage differentials in Mexico have widened and appear to be explained largely by
variation in regional access to foreign trade and investment and in regional opportunities
for migration to the United States. I discuss implications of Mexico’s experience for the
rest of Latin America in the event a Free Trade Agreement of the Americas is enacted.

I thank Daniel Chiquiar, Toni Estevadeordal Bill Maloney, Pablo Sanguinetti, Alan
Taylor, and participants at the “FTAA and Beyond” conferences at Harvard and Punta delEste, Uruguay for helpful comments.

INTRODUCTION
The proposed Free Trade Agreement of the Americas (FTAA) would alter
dramatically trading relationships in the Western Hemisphere. Eliminating trade barriers
within the region would, among other effects, induce economies to specialize more inexport production. Such specialization would enable countries in Latin America torealize gains from trade, but these income gains would likely not be shared equally by all
individuals in society.

In Brazil, for instance, farmers growing oranges or workers

producing shoes would likely benefit more from an FTAA than would capital- intensive
manufacturers. As a result, an FTAA would be likely to redistribute national incomes in
the region. Latin America’s long history of income inequality makes the impact of an
FTAA on the distribution of earnings an important issue for policymakers.
In this paper, I use Mexico as a test case for how regional free trade affects labor
earnings. I examine how trade reform in Mexico, and the North American Free Trade
Agreement (NAFTA) in particular, has altered the country’s wage structure. Mexico is a
useful case to study because it has opened itself to trade aggressively. It unilaterally
liberalized foreign trade and investment policies in the 1980’s and then enacted NAFTA
in 1994, which further reduced trade barriers and helped lock in reform by enshrining it
in a multilateral treaty. Mexico is now as closely tied to the North American economy asat any point in its history. In 2000, it sent 88.7% of its exports to and bought 73.1% of its
imports from the United States. Greater openness has helped increase the share of trade
in Mexico’s GDP from 11.2% in 1980 to 32.2% in 2000.
There are several channels through which North American economic integration
impacts Mexico’s labor market. One is by equalizing the price of traded goods between

1economies. Trade theory predicts that convergence in goods’ prices between countries
creates pressure for convergence in factor prices. In Mexico, this would affect both wage
levels and the relative wages of low- and high-skilled labor. An additional channel
through which trade reform may shock labor demand is through its impact on capital
flows. Given that capital appears to complement skilled labor, capital inflows may
increase the demand for skill. In Mexico, NAFTA appears to have raised capital inflows
in part by raising investor confidence in the country’s commitment to free trade. From1980 to 1994, foreign direct investment (FDI) average 1.3% of Mexico’s GDP, whilefrom 1995 to 2000, it averaged 2.8% of GDP (Chiquiar 2001). About two-thirds of thisFDI comes from the United States. In Mexico’s export assembly sector, capital inflows
expand trade directly. The creation of export assembly plants, or maquiladoras, by U.S.
firms in Mexico has increased trade in intermediate inputs. In 2000, maquiladoras
accounted for 47.7% of Mexico’s exports and 35.4% of Mexico’s imports.
In using Mexico to preview the effects of an FTAA, it is important to recognizethat it differs from the rest of Latin America in some important respects. In particular,
Mexico shares a land border with the United States that creates opportunities for
migration abroad that other countries do not enjoy. During the 1990’s, net immigrationfrom Mexico in the United States was about 400,000 individuals per year. In the absenceof migration flows, trade reform in Mexico might have generated even more trade and
FDI than has occurred. Any estimate of the impact of regional free trade on Mexico,then, may understate the impact an FTAA would have on the rest of the region.
The body of the paper has two parts. In part one, I examine changes in Mexico’s
wage structure following reforms in the 1980’s. Here, I rely on a substantial body of2research that examines the impact of specific policy changes on labor earnings. This
work finds that lower barriers to foreign trade and investment have changed Mexico’s
wage structure. The evidence suggests that tariff reductions have increased relative
wages for skilled workers, increased foreign investment has raised the relative demand
for skilled labor, and tariff and quota reductions have altered inter- industry wage
differentials. Mexico’s economic opening thus appears to have raised the skill premiumand reduced industry rents going to labor. It also appears to have increased wages instates along the U.S. border relative to the rest of the country.
In part two of the paper, I use data from the 1990 and 2000 Mexico population
census to examine changes in Mexican wages over the period during which NAFTA was
implemented. During the 1990’s in Mexico, the returns to skill continued to rise andregional differences in wages continued to widen. Wage gains were largest in regions
most exposed to international trade, FDI, and/or opportunities for migration to the UnitedStates.

After controlling for regional exposure to globalization, other regional

characteristics appear to be unimportant in explaining wage changes. Overall, wage
gains were largest for more-educated workers living close to the United States andsmallest for less-educated workers living in the country’s south. There is little evidenceof convergence in wages between Mexico and the United States. I conclude the paper bydiscussing the implications of these results for an FTAA.

POLICY CHANGE AND WAGES IN MEXICO: THE FIRST REFORM WAVEThe last two decades in Mexico have not been a quiet period. Since 1980, thecountry has had three currency crises, bouts of high inflation, and severe macroeconomic

3contractions. The reform of the country’s trade and investment policies has been, in part,a response to this turmoil. Following a balance of payments crisis in 1982, the country
eased restrictions on maquiladoras. In 1985, Mexico joined the General Agreement on
Trade and Tariffs (GATT), which entailed cutting tariffs and eliminating many non-tariffbarriers. In 1989, Mexico eased restrictions on the rights of foreigners to own assets inthe country. In 1994, NAFTA consolidated and extended these reforms and tied them toreciprocal access to the U.S. and Canadian markets. Concomitant with its economic
opening, Mexico privatized state-owned enterprises, deregulated entry restrictions inmany industries, and used wage and price restraints to combat inflation.
The policy shocks to Mexico’s labor markets have attracted much academic
attention. A large body of work examines the impact that these policy changes have hadon wages in the country. In this section, I briefly survey the literature. I organize thediscussion around three questions: (i) Why have skill premia in Mexico risen? (ii) Has
greater economic openness affected regional wage differences in Mexico? And, (iii) is
there evidence of labor- market integration between Mexico and the United States?

Rising Skill Premia in Mexico
Relative to the United States, Mexico has abundant supplies of less-skilled laborand scarce supplies of human and physical capital. Trade and investment reforms would
be likely to alter the relative demand for labor of different types, producing changes in
the premium for skill.

Recent research shows that Mexico has indeed experienced

changes in the relative wages of skilled workers, but ones that are quite different fromwhat many would have expected given Mexico’s relative factor supplies.

4Since the mid 1980’s, Mexico has experienced widening wage inequality
associated with rising returns to skill. Cragg and Epelbaum (1996) show that between
1987 and 1993, though average real wages rose by 30%, the wages of urban workers witha primary education (grade six completed) fell relative to the wages of urban workers
with secondary education (completed grade nine) by 15% and relative to the wages ofurban workers with post-secondary education by 60%.

The returns to labor-market

experience also rose markedly over this time period. Skill premia continued to rise in the
1990’s. Robertson (2001) finds that the annual return to schooling for urban workers
rose from 0.035 in 1987 to 0.05 in 1994 and to 0.07 in 1998. Consistent with evidence
that skill premia and average educational attainment among workers have increased
simultaneously, Cragg and Epelbaum (1996) suggest that Mexico’s rising skill premiumis due mostly to increases in the relative demand for skill.
Why has the relative demand for skilled labor in Mexico risen? The literature
proposes a several answers to this question. The one that has attracted the most attention
is that rising skill premia are due to trade and investment liberalization. Attributing risingskill premia to trade reform may seem counterintuitive, given Mexico’s presumed
comparative advantage in low-skill activities (Leamer, 1993). The natural expectation
might be that skill premia in Mexico would fall, not rise, after liberalization. 1
This line of reasoning, however, does not accord with the pattern of tradeprotection in Mexico before reform. At the time Mexico began to lower its trade barriers,
labor- intensive sectors had the highest tariff barriers. Hanson and Harrison (1999) findthat 1984 industry tariffs are negatively correlated with the 1984 industry ratio of white-

1

See Robbins (1995) for a cross-country comparison of changes in wage inequality following trade reform.

5

collar to blue-collar employment and that the 1984-1990 change in industry tariffs ispositively correlated with this employment ratio. This suggests that trade protection was
initially higher in less-skill intensive sectors and was reduced by more in these sectors
during reform. If these tariff changes were passed through to changes in goods’ prices,then the logic of the Stolper-Samuelson Theorem (1941) would imply that the relative
wage of skilled labor would have risen. Robertson (2001) suggests that this is exactly
what happened. He finds that over the period 1987-1993 the relative price of skillintensive goods in Mexico rose and that the tariff- induced change in relative prices had
the effect of raising the relative wage for white-collar labor.

Interestingly, tariff

reductions in Mexico due to NAFTA have been larger in more-skill intensive sectors,
suggesting that the final stage of trade reform may halt the increase in skill premia.
In related work, Feliciano (2001) finds that between 1986 and 1990 wage
dispersion in Mexico rose more in tradables than in non-tradables. She also finds that
trade reform altered inter- interindustry wage differentials. Industry wage premia fell
more in industries with larger reductions in import-license requirements, but not inindustries with larger reductions in tariffs. Consistent with these results, Revenga (1997)
finds that over the period 1984-1990 manufacturing plants in industries with larger
reductions in tariffs and non-tariff barriers had higher reductions in employment. Thesefindings suggest that industries that enjoyed high rents before trade reform, as indicatedby high average wages after controlling for observable worker characteristics,
experienced relatively large reductions in wages and employment after trade reform.
Another mechanism through which trade and investment reform may haveincreased the demand for skilled labor in Mexico is outsourcing to the country by foreign6firms. A large fraction of U.S.-Mexico trade in manufactured products is the result of
U.S. firms establishing maquiladoras in Mexico. These plants import nearly all parts andcomponents from the United States, assemble final goods in Mexico, and export most
output back to the United States. In 1995, exports by maquiladoras accounted for 40.2%
of all Mexican exports to the United States. 2 From 1980 to 1997, the maquiladora shareof national manufacturing employment in Mexico rose from 5.6% to 25.1%. The plants
are concentrated in Mexican states on the U.S. border. 3
How has the growth of maquiladoras affected labor demand in Mexico? Feenstra
and Hanson (1997) show that in theory if policy reform allows U.S. firms to outsource
more production to Mexico, these firms will choose to move the least skill- intensive
activities that they perform. By moving low-skill activities to Mexico, the average skill
intensity of production would rise in both the United States and Mexico. This would
raise the relative demand and earnings of high-skilled workers in both countries,
contributing to a binational increase in wage inequality.
To test these predictions, Feenstra and Hanson (1997) examine whether the
relative demand for skilled workers in Mexico has risen more in regions where foreign
investment has been concentrated. They use regional data on maquiladoras to measure
the spatial distribution of foreign direct investment in Mexico. Consistent with their
2

Most maquiladoras assemble one of three types of goods, apparel, electronics, or auto parts. In 1995,
these three industries accounted for 80.5% of total exports by maquiladoras to the United States.
3
It is often asserted that the growth of maquiladoras was the result of special trade advantages afforded togoods produced by these plants on their entry into the United States. Tariffs are levied only on the value
added abroad (i.e., in Mexico) and not on the value of the U.S. inputs used in the assembly of the goods.
Mexican firms that use domestically-produced inputs enjoy no such advantage. An alternative view is thatmaquiladoras have expanded in part because Mexico, given its relative abundance of low-wage labor, has acomparative advantage in assembly-type activities (rather than in entire industries). Since NAFTA was
implemented in 1994, maquiladoras have lost their special trade advantages in most industries. Yet, until
2000 maquiladoras continued to grow faster than any other sector in the economy. This suggests that theirinitial trade advantages relative to other firms in Mexico cannot fully account for their growth.

7theory, during the 1980’s the relative demand for high-skilled workers was higher inregions where maquiladoras expanded most rapidly. Maquiladora growth can account forover 50% of the increase in the skilled labor wage share that occurred during the late1980's. These results suggest that U.S. outsourcing to Mexico, in the form of creating
maquiladoras, has contributed to rising in wage inequality in the country.
Beyond the specific activity of outsourcing, FDI in general is likely to affect thelevel and structure of wages in Mexico. Aitken, Harrison, and Lipsey (1996) find that,
controlling for plant, industry, and region characteristics, manufacturing plants that areforeign owned pay their skilled workers 21.5% more and their unskilled workers 3.3%
more than plants that are domestically owned. Similar results hold for Venezuela. These
results are consistent with several interpretations. Workers may be more productive in
multinational firms, multinationals may attract more able workers, or multinationals may
earn rents and share these rents with their workers.

Regional Wage Differences in Mexico
Mexico's proximity to the United States suggests that trade liberalization for thecountry was tantamount to economic integration with its northern neighbor.

Givennorthern Mexico enjoys relatively low-cost access to the U.S. market, we would expectthat North American economic integration would raise the demand for labor in the region
relative to the rest of the country. Hanson (1996, 1997) examines how trade reform has
affected Mexico’s regional economies. Following trade reform, there has been a decline
in relative industrial activity in central Mexico and an expansion in northern Mexico. In
1980, five years before trade reform began, 46% of the Mexico's manufacturing labor8force was located in the Mexico City area and 21% was located in states on the U.S.
border (Hanson 1997). In 1993, after eights years of reform, the share of manufacturing
activity in Mexico City had fallen to 29% and the share at the border had risen to 30%.
By 1998, four years after NAFTA, Mexico City’s employment share had fallen further to
23% and the border’s employment share had risen to 34% (Chiquiar 2001).
Movements in regional relative wages also suggest North American economic
integration has benefited northern Mexico disproportionately. Hanson (1996) estimatesstate manufacturing wages relative to national manufacturing wages as a function of
distance to Mexico City (the largest market in the country prior to trade reform) anddistance to the United States (the largest market for the country’s goods after tradereform). Regional relative wages are negatively correlated with distance to Mexico City
and with distance to the Mexico-U.S. border. Prior to trade reform, a 10% increase indistance from Mexico City was associated with a 1.9% decrease in the relative statenominal wage, and a 10% increase in distance from the Mexico-U.S. border was
associated with a 1.3% decrease in the relative state nominal wage. After trade reform,
the regional wage gradient shifts. The effect of distance from Mexico City on state
wages weakens and the effect of distance from the United States strengthens.
In related work, Chiquiar (2001) finds that for the period 1970-1985 there wasconvergence in per capita GDP levels across Mexican states, but that after 1985 thisprocess broke down. For the period 1985-1993, there is strong divergence in state percapita GDP levels and for the period 1993-1998 relative state GDP levels remain roughly
constant. The divergence in regional growth occurs at the time of trade reform.

9The experience of Mexico suggests that trade policy plays an important role indetermining regional economic fortunes. While trade reform raises wages in Mexican
border states, it may lower wages in regions of the country that had a privileged role
under the closed economy or that have poor access to the U.S. market.

Convergence in Mexican and U.S. Wages
Have the flows of goods, capital, and people helped integrate the labor markets of
Mexico and the United States? In one of the few papers to address the topic, Robertson(2000) examines whether shocks to Mexican wages are correlated with shocks to U.S.
wages. Using household data from the two countries over 1987-1997, Robertson takes
mean wages by age, schooling, region of residence, and time period and constructs apanel of synthetic cohorts. He then regresses the quarterly change in Mexican wages fora given age-education-region cell on quarterly changes in U.S. wages for the same ageeducation cell and on the lagged difference in U.S. and Mexican wages for the cell. The
first variable captures the strength of labor- market integration between the two countries
and the second captures the rate of wage converge nce between the two countries.
Wage changes in Mexico are positively correlated with wage changes in the
United States. This suggests that there is at least partial labor-market integration between
the two countries. A shock that raises U.S. wages by 10% would raise wages in Mexican
interior cities by 1.8% and wages in Mexican border cities by 2.5%. Wage changes in
Mexico are negatively correlated with the lagged U.S.-Mexico wage difference, whichsuggests that over time wages in the two economies tend to converge. The estimatedconvergence rates are very rapid, with equilibrium U.S.-Mexico wage differentials being

10

reached within one to two quarters. This finding of rapid convergence seems at odds
with rising levels of trade, investment, and migration between the two countries, whichsuggests that integration of U.S. and Mexican markets is incomplete and that wage
convergence between the two countries would be more gradual.
Revenga and Montenegro (1998) offer a related analysis of U.S.-Mexico wage
differentials. They use data on Mexican manufacturing plants and U.S. manufacturingindustries for 1984-1990 to examine the evolution of average industry wages in Mexico
relative to the United States. They regress the log ratio of average wages in Mexican
plants to average wages in the corresponding U.S. industry on average industry tariffs in
Mexico, average industry import license requirements in Mexico, and other controls. The
analysis is performed separately for less- and more-skilled workers. The Mexico-U.S.
wage is positively correlated with Mexican tariffs and import- license requirements. The
estimated regression coefficients for the sample of production workers and for the sample
of non-production workers are very similar.

A 50% reduction in tariffs would be

associated with a 3.7% reduction in relative Mexico-U.S. wages for less-skilled workers
and a 4.3% reduction in relative Mexico-U.S. wages for more-skilled workers.
It is tempting to interpret these results to mean that trade liberalization in Mexico
depressed wages for Mexican workers relative to their U.S. counterparts. Were this thecase, one might the effects on more- and less-skilled workers to be asymmetric, but they
are not. An alternative and more plausible interpretation is that trade barriers in Mexico
allowed firms to earn rents, which they shared with workers in the form of higher wages.
Trade reform would have reduced these rents, producing a positive correlation between
trade protection in Mexico and relative Mexico-U.S. wages for all labor types.

11Summary
Recent literature suggests that liberalizing barriers to trade and investment havecontributed to changes in Mexico’s wage structure. 4 There is evidence consistent withtariff reductions having increased rela tive wages for skilled workers, increased foreign
investment having raised the relative demand for skilled labor, and tariff and quota
reductions having altered inter- industry wage differentials. Mexico’s economic opening
thus appears to have raised the demand for skill and reduced industry rents going to labor.
Both changes appear to have had adverse consequences for low-skilled workers.
Several larger messages also emerge from the literature. One is that Mexico’s
comparative advantage in low-skill activities is not as strong as many had thought.
Mexico’s trade reform entailed larger tariff reductions in less-skill- intensive industries,
reflecting the high levels of protection afforded these industries under import-substitution
industrialization. After trade reform, less-skill- intensive industries ended up taking thehardest hit in terms of wage and employment declines. This may come as a surprise,given Mexico’s presumed comparative advantage in labor-intensive activities. While
Mexico may have such a comparative advantage relative to the United States, it isprobably does not relative to China or South Asia. Trade liberalization exposed Mexico’svulnerability in very low-end manufacturing, as producers in this segment lost out toimports. Replacing these producers were export assembly plants in apparel, auto parts,and electronics.

While Mexico may have a cost disadvantage relative to China in

4

There is also evidence that other reforms affected Mexico’s labor market. During the 1980’s, real
minimum wages declined substantially. Bell (1997) finds that this didn’t affect formal-sector employment
due to low initial minimum wages and non-compliance with minimum wage laws (see Feliciano, 1998, forevidence of stronger minimum-wage effects). Woodruff (1999) finds that government encouragement ofwage restraints to combat inflation in the late 1980’s had a larger impact on large firms than on small firms,
leading to a disappearance of the employer-size wage effect. Fairris (2003) finds that during the late1980’s and early 1990’s the observed increase in wage dispersion in Mexico was larger in the unionizedsector (though lower in this sector to begin with), perhaps indicating a decline in union bargaining power.

12finished goods like t-shirts, plastic footwear, and simple consumer electronics, it appears
to have a cost advantage in assembly services for the U.S. economy.

Mexicanmanufacturing has, in effect, reoriented itself from producing simple consumer goods tobeing a subcontractor for the North American economy.
A second message to emerge from the literature is that trade and FDI appear to becomplements. Trade reform freed up resources in manufacturing that allowed Mexico to
become more specialized export assembly.

But to make this transition, the country

needed FDI. The arrival of foreign firms brought in needed capital and new technology
for managing assembly operations and handling the logistics of importing intermediate
inputs and exporting output. These assembly operations, as it turns out, are intensive inthe use of skilled labor relative to other Mexican manufacturing plants. The combinationof freer trade, which allowed greater specialization, and fewer restrictions on FDI, whichallowed plants in Mexico to become part of North American production networks,
induced in shift from low-end production for the domestic economy to the provision of
input-processing services for the North American economy.

WAGES AND EMPLOYMENT IN MEXICO, 1990 AND 2000
Previous literature has focused on how Mexico’s reforms affected wages andemployment in the country during the 1980’s and early 1990’s. There is little work on
the post-NAFTA period or that evaluates the relative impact of Mexico’s economic
reforms on labor- market outcomes in the country. In the next two sections, I attempt toaddress these shortcomings. I study changes in Mexico’s wage structure over the period
1990-2000. The goals of this exercise are (a) to examine whether changes in Mexican

13

wages in the 1990’s mirrored those in the 1980’s, (b) to assess whether there has been
convergence between U.S. and Mexican wages, and (c) to evaluate how different formsof economic openness have impacted Mexico’s wage structure.

Data and Summary Statistics
The data I use for the analysis are 1% random samples from the 1990 and 2000
Mexico population census.

Much previous research limits the analysis to the

manufacturing sector and/or to workers in large cities and so gives only a partial view of
how Mexico’s wage structure has evolved. The census provides comprehensive data on
earnings and employment in Mexico. By looking over the entire decade of the 1990s, theanalysis spans both the planning and negotiation period for NAFTA and the period
following its enactment. This helps account for the possibility that firms began adjustingto NAFTA before the treaty was formally approved. It also extends the time period wellbeyond the severe recession Mexico suffered in 1995, when real GDP fell by 6.2%,
which was precipitated by a bungled devaluation of the peso.
Table 1 gives summary statistics on the sample of individuals in 1990 and 2000.
To focus on potential wage earners, I include only individuals 16-65 years old. Overtime, Mexico has experienced increases in educational attainment. From 1990 to 2000,
the share of working-age individuals with 8 years of education or less declined from
59.3% to 47.5% for males and from 63.3% to 51.4% for females. There are marked
increases in the share of individuals completing secondary school (9 years) or preparatory
school (12 years). Despite large wage differences across regions (as discussed in the lastsection), there is little interregional migration. The border region, which has the highest

14

wages in the country, had its share of the national population increase by only 1.0% formales and 0.5% for females. Within regio ns, there has been rural-to-urban migration.
The share of individuals living in cities with more than 500,000 inhabitants rose by 4.8%
for males and 4.4% for females and the share of individuals living in localities with less
2,500 inhabitants fell by 4.0% for males and 3.2% for females.
Despite increases in schooling, average hourly earnings fell in the 1990’s. When
deflated by Mexico’s CPI, the average hourly wage in 1990 dollars declined for males
from $1.33 to $1.11 and for females from $1.24 to $1.13. Wage declines are larger whencontrols are added for individual characteristics. These wage movements reflect in partthe effects of Mexico’s economic collapse in 1995. Even with falling wages, labor- force
participation rates rose modestly for males and sharply for females over the decade. By
2000, 30.9% of working-age women were wage earners, up from 20.7% in 1990.
Table 2 shows the distribution of employed individuals across industries in 1990
and 2000. The major change in industrial specialization over the period was a decline in
employment in agriculture and mining. The sector’s share of male employment fell from
28.9% to 20.7%. due in part to the reform of the land tenure system in Mexico and thebreakup of rural cooperatives, or ejidos. Manufacturing’s share of total employment
remained steady over the 1990’s at around 20%.

OLS Wage Regressions, 1990 and 2000
To summarize changes in Mexico’s wage structure, I present results from OLS
wage regressions. Since most regressors in the estimation are dummy variables, theseresults summarize the conditional mean of log wages with respect to education, region,15

industry, and other characteristics. This is a compact way to characterize the returns toobservable characteristics at different points in time.
Tables 3a and 3b present the estimation results for males and females. The
dependent variable is log average hourly earnings. The independent variables are dummy
variables for seven categories of education attainment (the excluded category is noschooling), age and age squared, a dummy variable for whether an individual is married,
dummy variables for four categories of city/locality size (the excluded category is
localities with fewer than 2,500 inhabitants), dummy variables for five regions (theexcluded region is the South), and dummy variables for nine industries (the excluded
sector is agriculture and mining). To reduce the effects of measurement error, I drop
observations with the lowest or highest 0.5% of wage values. 5 The sample is wage
earners, 25-65 years old. The tables report results for the full sample and excluding theself-employed. In unreported regressions I find little impact of excluding those whowork less tha n 20 hours per week or of further restricting extreme wage values.
In Table 3a, several changes in earnings for males over 1990-2000 are apparent.
First, there is a sharp increase in the returns to high levels of schooling (but not to low ormoderate schooling). The returns to completing 13-15 years of schooling (the equivalentof some college) rose by 13.3 log points and the returns to completing 16 or more yearsof schooling (the equivalent of at least a college education) rose by 13.1 log points.
Second, there is a decrease in returns to age. A 30 year old received a boost in wages foran extra year of age of 1.7 log points in 1990 but only 1.2 log points in 2000. Third, there
are changes in regional wage differentials. Between 1990 and 2000, wages in the border5

The 1990 sample has a large number of observations with very low hourly wages. To account for what
appears to be more severe measurement error in 1990, I first drop observations (3031 in total) with wages
below $0.006 dollars per hour, for which there is zero mass in the 2000 sample and then trim the 1% tails.

16region rose by 8.5 log points relative to south region, while wages in other regions werestable relative to the south. Fourth, there are changes in inter- industry wage differentials.
Wages in agriculture, the excluded sector, rose relative to all industries except public
administration and social assistance. This may reflect the reform of agriculture. With the
breakup of ejidos, only relatively high-wage workers may have remained in the sector.
Some results are sensitive to whether or not the self-employed are included in thesample. Excluding the self-employed, wages in all regions except the Yucatan rose
relative to the south. The border again showed the large st increase in relative wages.
Table 3b shows wage regressions for females. For women, there were increases
in returns to education at all levels, with the largest increases occurring at the highest
schooling levels. Wages in the south fell relative to wages in all other regions, with theborder having the largest wage increases. In contrast to males, females in manufacturing
earn relatively low wages. The results for women should be interpreted with caution.
The large increase in female labor- force participation in the 1990’s suggests that thecomposition of females in the labor force may have changed over time. Self-selection
into work may introduce bias into the estimation for women.

Summary
Wages changes in the 1990’s mirrored those in the 1980’s. Returns to schoolingappeared to rise, the border wage premium rose, and industry wages shifted in favor of
agriculture. While manufactur ing employment became more concentrated in the borderregion, the border’s share of the national population increased only slightly.

17

ECONOMIC OPENNESS AND CHANGES IN MEXICO’S WAGE STRUCTURE
In this section, I examine the role that economic openness has played in Mexico’s
evolving wage structure. To do so, we need measures of shocks to the economy and to
define groups of workers that have similar sensitivities to these shocks. Lacking data on
individuals over time, I construct a panel of synthetic cohorts. For 1990 and 2000, I
calculate average hourly earnings for individuals in the sample and then take mean wages
for cells broken down by sex, age, education, and region. I define cells according to four1990 age categories (16-25, 26-35, 36-45, and 46-55 years), seven education categories(0-4, 5-8, 9-11, 12, 13-15, and 16+ years of schooling), and each of Mexico’s 32 states.
I then track wage changes for the same cohort between 1990 and 2000 (e.g., the change
in wages between 26-35 year-old males with 12 years of education in a given state in1990 and 36-45 year-old males with 12 years of education in the same state in 2000).

Wages Changes for Mexican and U.S. Cohorts
The first exercise is to compare wage changes in Mexico and the United States.
Evidence using high- frequency data in Robertson (2001) suggests that Mexico-U.S. wage
convergence is occurring.

I revisit the issue using long-period time changes. Thisrequires constructing a matching panel of U.S. synthetic cohorts. To do so, I use the1990 and 2000 Current Population Survey (for merged outgoing rotation groups). These
cohorts are defined for the United States as a whole for the same age and education
categories as their Mexican counterparts. One problem with the CPS is that it does not
identify country of birth in 1990. U.S. cohorts thus include both immigrant and nativeborn workers.

This is unfortunate because during the 1990’s large numbers of18

immigrants with low-education levels arrived in the United States. Immigration changes
the underlying population of individuals from which the CPS sample is drawn, with thechange being largest for the cohorts with the lowest education levels.
Table 4 summarizes changes in Mexican wages relative to changes in U.S. wages
over the 1990’s for the panel of synthetic cohorts. All wage changes are weighted byaverage cohort size in 1990 and 2000. In terms of nominal dollar values, Mexican wages
rose relative to U.S. wages by 3.1 log points over 1990-2000.

But Mexico’s small

relative nominal gains were swamped higher relative inflation in Mexico. As a result,
Mexico’s average real CPI wage fell by 17.3 log points. For mean wages, there thus
appears to be no evidence of Mexico-U.S. wage convergence.
The results in Table 4 suggest there has been substantial variation in wagechanges across labor- market groups in Mexico. To see this variation more clearly, Table
5 breaks out changes in real CPI Mexico wages and real relative CPI Mexico-U.S. wages
for the sample of cohorts by age, education, and region. Real Mexico wages and real
Mexico-U.S. wages fall least for younger cohorts. Young women are the only cohort toexperience real wage gains both in absolute terms and relative to the United States. From
Table 3, it is not surprising to see that more educated workers have higher wage growth.
Men with 13 or more years of education have positive real wage gains, but only males in
the 13-15 years of education cohort have real wages gains relative to the United States.
Women with 12 or more years of education have real absolute and relative wage gains,
again with the 13-15 years of education cohort showing the strongest gains.
Turning to regions, we see that on average all regions show real absolute andrelative wage declines. These declines are smallest in the border region and largest in the19south and the Yucatan. In Table 3, more educated workers and workers in the borderregion were among those with the highest wages in 1990. The results in Table 5 suggestthat young, highly educated workers living in the border region had the strongest wage
growth during the 1990’s. Together, these two findings suggest there was little wage
convergence across labor market groups during the 1990’s. This lack of convergence isconsistent with Chiquiar’s (2001) results on the late 1980’s and early 1990’s.

Estimation Results on Mexico-U.S. Wage Convergence
To examine the contribution of economic openness to changes in Mexico’s wage
structure, I estimate regressions of wage changes for the panel of synthetic cohorts. The
dependent variable is the 1990-2000 change in log wages by Mexican cohort. The
independent variables are drawn from the following set: the 1990 log wage for the
Mexican cohort; the 1990 log wage for the same age-education U.S. cohort; the 19902000 change in log wages for the U.S. cohort; dummies variables for age, educationlevel, and region; and measures of regional exposure to globalization.
I begin by replicating the specification in Robertson (2000), in which theindependent variables are the log difference in lagged Mexico and U.S. wages and the log
change in U.S. wages. He allows regression coefficients to differ between border andinterior regions, in order to capture possibly stronger links between Mexican and U.S.
labor markets for Mexican regions closer to the United States. Similarly, I interact
regressors with a dummy variable for border states.
Table 6a reports the regression results for males and Table 6b reports theregression results for females. In column one of Table 6a, the regressors are the 1990

20

difference in log Mexico and U.S. wages, the 1990-2000 change in log U.S. wages, theinteractions of the wage variables with the border dummy, and region dummy variables.
The coefficient on the 1990 difference in Mexico-U.S. wages indicates whether there is
wage convergence between Mexico and the United States.

In column one, thiscoefficient is negative, small in magnitude, and imprecisely estimated. However, theinteraction between this wage variable and the border dummy is negative and precisely
estimated. For border states, but not for interior states, wage growth is higher for cohorts
where initial Mexico wages are lower relative to U.S. wages. This is consistent withconvergence between Mexico and U.S. wages in Mexican border states.
There is a strong positive correlation between wage growth in Mexico and wage
growth in the United States. The precisely estimated coefficient of 1.3 indicates that
Mexican wages increase more than one for one with increases in U.S. wages. This isconsistent with labor markets in Mexico and the United States being integrated, throughsome combination of trade, investment, and migration flows. The border interaction withthis variable is positive, though imprecisely estimated, showing weak evidence that
Mexico-U.S. integration is stronger in border states than in interior states.
The large coefficient on U.S. wage growth is surprising and invites skepticism.
One concern about the specification in column one is that by forcing the coefficients on
1990 Mexico wages and 1990 U.S. wages to be equal and of opposite sign we arepossibly convoluting Mexico-U.S. wage convergence with convergence or divergence inwages across Mexican cohorts. To address this issue, in column two I add the 1990 log
Mexico wage, and its interaction with the border dummy, as regressors. It is now thecase that the coefficients on the difference in 1990 Mexico-U.S. wages and the border21

interaction with this variable are statistically insignificant.

This is evidence against

Mexico-U.S. wage convergence. The coefficient on 1990 Mexico wages is positive andprecisely estimated and the border interaction with this variable is negative and precisely
estimated. What this suggests is that during the 1990’s interior regions had higher wage
growth for cohorts with higher initial wages. In other words, there was wage divergencein interior regions, but not in the border region.

This evidence of growing wage

dispersion is not surprising, given the rising returns to skill evident in Table 3. Overall,evidence of Mexico-U.S. wage convergence appears to be fragile. This confirms theimpression from mean relative wage changes in Table 4.
In column three, I examine the sensitivity of changes in Mexico wages to changes
in U.S. wages by adding dummy variables for three age categories (16-24 years of age isthe excluded category) and dummy variables for five education categories (0-4 years ofschooling is the excluded category) to the regression. The dummy variables for age areindividually and jointly statistically insignificant. After controlling for education and
U.S. cohort wage changes, there appear to be no age-specific wage changes in Mexico.
The dummy variables for education are positive and precisely estimated, with larger
magnitudes for higher education levels that suggest rising returns to schooling.
With controls for age and education included, the coefficient on U.S. wagechanges becomes small and imprecisely estimated. Since U.S. wages vary only by age
and education, the only variation left in U.S. wage changes after including age andeducation dummies are age-specific changes in the returns to education. The results
suggest that it is the commonality in overall changes in returns to education that accountfor the strong positive correlation between Mexico and U.S. wage changes. These results

22are not evidence against Mexico-U.S. labor market integration. Instead, they imply thatthe mechanisms that link wages in Mexico and the United States (be they trade, FDI,
and/or migration) work through broad changes in the returns to education.

Estimation Results for Regional Exposure to Globalization
In column four of Table 6a, I add controls for regional exposure to globalization
to the specification. To control for regional variation in business cycles, I also include
the log change in state real GDP as a regressor. I include six measures of regional
exposure to foreign trade and investment. The share of manufacturing in state GDP and
the share of agriculture in state GDP control for variation across regions in industrial
specialization in traded goods. The share of net foreign direct investment flows in state
GDP controls for how attractive the state is to multinational enterprises. The state shareof national maquiladora employment controls for the attractiveness of the state to foreign
firms that specialize in export assembly operations.

Some but not all FDI is inmaquiladoras. Imports as a share of state GDP capture the exposure of the state toforeign trade (similar measures for exports are unavailable). Distance to the UnitedStates (nearest U.S. border crossing) captures physical proximity to U.S. markets.
Several estimation issues merit comment. Most globalization variables are interms of shares averaged over the 1990’s, rather than as changes in shares, to avoid
introducing simultaneity into the regression.

Average shares of FDI, imports,

manufacturing, or agriculture in GDP capture cross-section differences in regional
exposure to globalization. Changes in shares would capture state specific globalization
shocks that might be correlated with unobserved shocks to wages. By regressing changes

23

in wages on average cross-sectional characteristics, I capture transitional dynamics instate wages associated with adjustment to NAFTA (and other shocks).

Results are

similar results when shares in the initial period are used instead of average shares.
I include one measure of regional opportunities to migrate to the United States.
Some background is helpful to understand this measure. A large literature documentsthat some Mexican states are more likely than others to send migrants to the UnitedStates and have been for many decades (e.g., Woodruff and Zenteno 2001). These states
are mostly in agricultural regions in western Mexico. They are neither the poorest statesin the country nor the states that are closest to the United States. Most research attributes
these migration patterns to longstanding regional networks that help Mexican workers
find jobs in the United States. The persistence of these migration networks suggests that
historical migration flows are a good indicator of current regional opportunities for
migration abroad. The measure I use is the share of the 1960 state population that
migrated to the United States over the period 1955-1959. I obtain similar results for
current migration flows. 6 Historical measures reduce concerns about endogeneity.
Column four of Table 6a reports the results. Wage changes are uncorrelated withthe share of state GDP in manufacturing or in agriculture. It appears that industrial
specialization (at least measured at this aggregate level) is not associated with changes inregional wage differences. Mexican regions with larger manufacturing sectors do havehigher wage levels but did not enjoy higher wage growth in the 1990’s.
There are strong positive correlations between wage growth and the share of FDI
and between wage growth the share of imports in state GDP. It appears that states with6

As one indication of this, the correlation between the shares of the state population that migrated to theUnited States over the period 1995-2000 and over the period 1955-1959 is 0.68.

24

greater exposure to multinationa l firms and/or with greater exposure to foreign trade
enjoyed higher wage growth in the 1990’s. This suggests, perhaps not surprisingly, that
regions with better access to global markets for goods and capital had larger increases inthe demand for labor during the 1990’s. The correlation between wage changes and thestate share of national maquiladora employment is positive but statistically insignificant.
What this may suggest is that, controlling for FDI inflows (and for state proximity to theUnited States), there is nothing special about a state having a particular concentration inexport assembly operations. What matters is overall access to foreign capital.
There is a strong positive correlation between wage changes and historical statemigration rates to the United States. States with better opportunities for migration abroad
had higher wage growth during the 1990’s. This suggests that migration abroad puts
upward pressure on wages in the region from which workers were drawn.
Regional exposure to globalization appears to account for a large portion ofregional wage differentials. To see this clearly, compare results in columns three andfour of Table 6a. The regression in column three includes controls for age, education,
lagged Mexico and U.S. wages, and U.S. wage growth. In this regression coefficients onregional dummy variables are large and statistically significant. When I introduce theglobalization measures in column four the magnitudes of these coefficients fallconsiderably and they become individually and jointly statistically insignificant. The
regional characteristics that matter for wage in Mexico during the 1990’s appear to be
those related to regional exposure to foreign trade, investment, and migration.
The results for females are shown in Table 6b. With a few exceptions, the results
for males and females are similar. For females, there remains the concern that changes in25their labor-force participation may complicate analysis of their wage changes. For
women, there is stronger evidence of wage convergence between Mexico and the UnitedStates (columns one and two). For women, as for men, there is evidence of wage
divergence in interior regions of the country, a strong positive correlation between
Mexico wage growth and U.S. wage growth, and strong positive correlations between
wage growth and the share of FDI in state GDP and historical state migration rates to theUnited States. There is no positive correlation between wage growth and the importshare of GDP, as there is for men. Also distinct from men, the globalization variables do
not render regional dummy variables statistically insignificant.
For males and females, I have estimated alternative specifications to gauge therobustness of the findings. The results on the globalization variables are robust to (a)allowing for interactions between returns to schooling and either border dummies or
distance to the United States, (b) using as the dependent variable changes in Mexico
wages minus changes in U.S. wages, and (c) measuring U.S. wages using data on the four
U.S. border states only rather than data for the U.S. as a whole.

IMPLICATIONS OF MEXICO’S EXPERIENCE FOR AN FTAAIn this paper, I have surveyed recent literature on the impact of trade andinvestment liberalization in Mexico on wages in the country and examined recentchanges in the country’s wage structure.

Over the last two decades, Mexico has

dramatically opened its economy to the rest of the world. During this period, Mexico has
experienced three significant changes in its wage structure: (a) overall wage levels have
had large temporary declines, usually following a macroeconomic contraction, (b) wages

26

in states on the Mexico-U.S. border have increased relative to wages in the rest of thecountry, and (c) there has been a sustained increase in the returns to skill in the country,
leading to an overall increase in wage inequality.
The breadth of Mexico’s reforms complicates identifying their effects on labormarkets in the country. Compounding these problems are the effects of Mexico’s recent
macroeconomic instability. Nevertheless, a number of important lessons emerge from
Mexico’s experience for how economic integration with other countries, and in particularwith a large, rich neighbor, impacts labor markets in a developing country. These lessons
are useful for gauging how an FTAA might affect other Latin American countries.
The liberalization of barriers to foreign trade and investment appears to havecontributed to an increase in the relative demand for skill in Mexico. Recent literaturesuggests that tariff reductions increased relative wages for skilled workers, increased
foreign investment raised the relative demand for skilled labor, and tariff and quota
reductions altered inter-industry wage differentials. Mexico’s economic opening thus
appears to have raised the premium paid to skilled workers and reduced rents inindustries that prior to reform paid their workers relatively high wages. Both of theseoutcomes have increased in wage dispersio n in the country.
One factor that contributed to how trade affected wages in Mexico was that prior
to trade reform, the country had relatively high tariffs on less-skill- intensive industries.
These industries thus bore the brunt of adjustment to Mexico’s economic opening.
Similar tariff adjustments following an FTAA are unlikely to be a common occurrence inthe rest of Latin America. One reason for this is that many countries have alreadyengaged in some degree of unilateral trade liberalization.

Columbia, for instance,27

reduced its trade barriers in the early 1990s. As in Mexico, trade reform in Columbia led
to larger tariff reductions in less-skill- intensive industries (Goldberg and Pavcnik, 2001).
Thus, the shock of trade reform related to tariff reductions in low-skill industries may
have already been delivered in many Latin American countries.
In the 1990’s, Mexico consolidated its economic opening by signing and enacting
NAFTA. The decade saw further increases in the premium paid to workers in Mexican
states on the U.S. border and in the premium paid to more-skilled workers. Following
Mexico’s peso crisis of 1994-1995, real wage levels declined both in absolute terms andrelative to the United States. Increases in the returns to education during the 1990’s in
Mexico were nationwide and appeared to follow closely increases in the returns to
education in the United States. Partial labor- market integration between Mexico and theUnited States is a likely explanation for these cross-border wage co- movements.
Changes in regional wage differentials in Mexico appear to be explained almost entirely
by regional variation in exposure to foreign markets.

Wage growth has been muchstronger in regions with higher levels of FDI, higher levels of exposure to foreign trade,and higher rates of migration to the United States.
Overall, the workers in Mexico that have fared the best in the country’s newly
globalized economy are those with relatively high skill levels living in regions withrelatively good access to foreign markets. Less-skilled workers and workers in regionswith relatively poor access to foreign markets have fared poorly. This aspect of Mexico’s
experience with globalization holds important lessons for an FTAA. Multinational firms
and firms in export-intensive sectors appear to have relatively strong demand for moreskilled labor and appear to place a premium on locating in regions with relatively high-28

quality transportation and communication infrastructure. In Mexico, NAFTA appeared tofortify incentives for FDI. If an FTAA does the same in the rest of Latin America, it islikely to be skilled workers who benefit first and in particular those living in larger cities,
or near international ports or airports. At least in the initial periods of adjustment to tradereform, the effects of greater economic openness appear to be greater dispersion in wages(with unknown effects on average wage levels). This is an unfortunate message for aregion with already high levels of inequality.
A related lesson from Mexico’s adjustment to NAFTA is that FDI appears to play
an important role in shaping the pattern of specialization that emerges in an economy
following a reduction in trade barriers. Much of Mexico’s export growth has occurred inmaquiladoras, whose expansion was made possible by a combination of lower tradebarriers and relaxed restrictions on FDI in Mexico and tariff breaks on imports with U.S.
content in the United States. If an FTAA does not also address restrictions on FDI in
Latin America, it may not produce the same degree of regional specialization in export
production that NAFTA has generated in Mexico.

29

References
Aitken, Brian, Ann E. Harrison, and Robert E. Lipsey. 1996. Wages and Foreign
Ownership: A Comparative Study of Mexico, Venezuela, and the United States. Journal ofInternational Economics 40(3-4): 345-71.
Bell, Linda A. 1997. The Impact of Minimum Wages in Mexico and Columbia. Journal ofLabor Economics 15(3): S102-35.
Chiquiar, Daniel 2001. Regional Implications of Mexico’s Trade Liberalization. Mimeo,
UCSD.
Cragg, Michael I. and Mario Epelbaum. 1996. The Premium for Skills in LDCs: Evidence
from Mexico. Journal of Development Economics 51(1): 99-116.
Fairris, David H. 2003. Unions and Wage Inequality in Mexico. Industrial and Labor
Relations Review, 56(3): 481-97.
Feliciano, Zadia 1998. Does the Minimum Wage Affect Employment in Mexico?
Eastern Economic Journal 24(2): 165-80.
Feliciano, Zadia. 2001. Workers and Trade Liberalization: The Impact of Trade Reforms
in Mexico on Wages and Employment. Industrial and Labor Relations Review 55(1): 95115.
Feenstra, Robert C., and Gordon H. Hanson. 1997. Foreign Direct Investment and Relative
Wages: Evidence from Mexico's Maquiladoras. Journal of International Economics, 42(34): 371-394.
Goldberg, Penny and Nina Pavcnik. 2001. Trade Protection and Wages: Evidence fromthe Colombian Trade Reforms. NBER Working Paper No. 8575.
Hanson, Gordon H. 1996. Localization Economies, Vertical Organizatio n, and Trade.
American Economic Review 86(5): 1266-1278.
Hanson, Gordon H. 1997. Increasing Returns, Trade, and the Regional Structure ofWages. Economic Journal 107(440): 113-133.
Hanson, Gordon H. and Ann E. Harrison. 1999. Trade, Technology, and Wage Inequality
in Mexico. Industrial and Labor Relations Review 52(2): 271-288.
Leamer, Edward E. 1993. Wage Effects of a U.S.-Mexico Free Trade Agreement. In P.M.
Garber, ed., The Mexico-U.S. Free Trade Agreement, Cambridge: MIT Press.

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Marcouiller, Douglas, Veronica Ruiz de Castilla, and Christopher Woodruff. 1997.
Formal Measures of the Informal Sector Wage Gap in Mexico, El Salvador and Peru.
Economic Development and Cultural Change 45(2): 367-392.
Revenga, Anna L. 1997. Employment and Wage Effects of Trade Liberalization: The
Case of Mexican Manufacturing. Journal of Labor Economics 15(3): S20-43.
Revenga, Anna L. and Claudia Montenegro. 1998. North American Integration and Factor
Price Equalization: Is There Evidence of Wage Convergence between Mexico and theUnited States? In Susan Collins, ed., Imports, Exports, and the American Worker,
Washington, DC: Brookings Institution Press.
Robertson, Raymond. 2000. Wage Shocks and North American Labor Market
Integration. American Economic Review 90(4): 742-764.
Robertson, Raymond. 2001. Relative Prices and Wage Inequality: Evidence from Mexico.
Mimeo, Macalester College.
Robbins, Donald. 1995. Trade, Trade Liberalization and Inequality in Latin America andEast Asia: Synthesis of Seven Country Studies. Mimeo, HIID.
Stolper, Wolfgang and Paul A. Samuelson. 1941. Protection and Real Wages. Review of
Economic Studies 9(1): 51-68.
Woodruff, Christopher. 1999. Inflation Stabilization and the Vanishing Size-Wage
Effect. Industrial and Labor Relations Review 53(1): 103-22.
Woodruff, Christopher and Rene M. Zenteno. 2001. Remittances and Microenterprises
in Mexico. Mimeo, UC San Diego.

31

Table 1: Summary Statistics

Age
Literate
Highest Gradeof SchoolingCompleted(%)

MarriedRegionSize of
Locality

Migration
Self- Employed
Wage Earner
Hourly wage
(US$)
N

0
1 to 45 to 89
10 to 1112
13 to 15
16+
BorderNorth
CenterCapitalYucatanSouth
500k+
100k-500k
15k-100k
2.5k-15k<2.5k
Since BirthWithin 5 Years

Current Prices
1990 Pesos
1990 Dollars

Males
1990
32.7
91.3
11.6
19.1
28.6
13.9
7.7
6.5
5.2
7.2
53.7
17.6
10.4
33.6
23.7
4.7
10.0
23.9
23.5
12.9
13.2
26.5
22.4
5.7
22.0
66.1
1.33

211,133

Males
2000
33.8
94.5
5.7
14.8
27.0
20.4
7.2
10.0
4.9
9.6
51.4
18.6
10.0
32.7
23.8
5.4
9.5
28.7
22.3
13.7
12.8
22.5
23.5
5.7
21.3
68.7
1.80
1.11
1.37
265,797

Females
1990
32.7
86.3
15.6
19.6
28.1
12.3
7.4
7.6
5.1
4.0
53.9
16.8
10.3
34.3
24.0
4.5
10.0
24.3
24.3
13.3
13.2
24.9
23.0
5.7
3.3
20.7
1.24

228,964

Females
2000
33.7
91.7
7.8
15.9
27.7
18.8
6.7
11.3
4.6
6.8
50.3
17.3
10.0
34.0
24.1
5.1
9.4
28.7
22.7
13.9
13.1
21.7
23.9
5.2
7.9
30.9
1.82
1.13
1.38
288,228This table shows summary statistics on a 1% sample of individuals 16-65 years old in the 1990 and 2000
Mexico Censo de Poblacio y Vivienda. Border: Baja California, Chihuahua, Coahuila, Nuevo Leon,
Sonora, Tamaulipas; North: Aguascalientes, Baja California Sur, Durango, Nayarit, San Luis Potosi,
Sinaloa, Zacatecas; Center: Colima, Guanajuato, Hidalgo, Jalisco, Michoacan, Morelos, Puebla, Queretaro,
Tlaxcala, Veracruz; Capital: Federal District, Mexico; South: Chiapas, Guerrero, Oaxaca; Yucatan:
Campeche, Tabasco, Quintana Roo, Yucatan.

32

Table 2: Distribution of Employment across Industries

Agriculture, Mining
Manufacturing
Trans, Comm, Elec, Water
Construction
Commerce
Public Administration
General Services
Restaurants, Hotels
Social AssistanceRepair, Domestic Services

Males
1990
28.9
20.7
6.6
9.1
12.3
3.8
4.1
2.6
5.1
6.8

Males
2000
20.7
20.0
7.7
11.8
14.3
4.2
6.0
3.6
5.1
6.6

Females
1990
3.5
20.5
2.2
0.9
18.9
5.1
6.5
6.2
23.1
13.1

Females
2000
4.7
19.3
2.3
0.8
23.0
4.5
6.3
7.8
16.8
14.5

This table shows the allocation of workers across industries. See Table 1 for details on the sample.

33

Table 3a: OLS Wage Regressions, Males in 1990 and 2000
Full Sample
w/o Self- Employed
Variable
1990
2000
1990
2000
Highest Grade
1 to 4
0.112
0.101
0.092
0.084
of Schooling(0.01)(0.01)(0.01)(0.01)
Completed
5 to 8
0.255
0.240
0.218
0.213
(0.01)(0.01)(0.01)(0.01)
9
0.410
0.381
0.373
0.345
(0.01)(0.01)(0.01)(0.01)
10 to 11
0.553
0.557
0.516
0.516
(0.01)(0.02)(0.02)(0.02)
12
0.686
0.686
0.643
0.645
(0.01)(0.01)(0.01)(0.01)
13 to 15
0.873
1.006
0.835
0.983
(0.02)(0.02)(0.02)(0.02)
16+
1.221
1.352
1.168
1.329
(0.01)(0.01)(0.01)(0.01)
Age
0.045
0.032
0.042
0.029
(0.00)(0.00)(0.00)(0.00)
Age Squared/100-0.047-0.033-0.045-0.031(0.00)(0.00)(0.00)(0.00)
Married
0.095
0.115
0.090
0.112
(0.01)(0.01)(0.01)(0.01)
Size of
500k+
0.293
0.308
0.238
0.286
Locality(0.01)(0.01)(0.01)(0.01)
100k-500k 0.243
0.251
0.190
0.233
(0.01)(0.01)(0.01)(0.01)
15k-100k
0.235
0.162
0.159
0.151
(0.01)(0.01)(0.01)(0.01)
2.5k-15k
0.164
0.110
0.110
0.10
(0.01)(0.01)(0.01)(0.01)
Border
0.375
0.460
0.260
0.418
(0.01)(0.01)(0.01)(0.01)
North
0.281
0.274
0.150
0.229
(0.01)(0.01)(0.01)(0.01)
Center
0.246
0.225
0.130
0.183
(0.01)(0.01)(0.01)(0.01)
Capital
0.216
0.215
0.114
0.189
(0.01)(0.01)(0.01)(0.01)

34

Table 3a Continued

YucatanManufacturing
Trans, Comm,
Elec, Water
Construction
Commerce
Public Admin.
Gen. Services
Restaurants,
HotelsSoc. Assist.
Repair,Domestic Serv.
N
R-Squared

0.084(0.01)
0.292(0.01)
0.328(0.01)
0.372(0.01)
0.286(0.01)
0.063(0.01)
0.397(0.01)
0.215(0.02)
0.274(0.01)
0.305(0.01)
93,9990.306

0.062(0.01)
0.221(0.01)
0.209(0.01)
0.263(0.01)
0.134(0.01)
0.185(0.01)
0.277(0.01)
0.127(0.02)
0.375(0.01)
0.153(0.01)
121,873
0.418-0.028(0.02)
0.220(0.01)
0.237(0.01)
0.277(0.01)
0.125(0.01)
0.033(0.01)
0.268(0.02)
0.050(0.02)
0.236(0.01)
0.144(0.01)
67,4090.295

0.065(0.01)
0.196(0.01)
0.172(0.01)
0.213(0.01)
0.057(0.01)
0.174(0.01)
0.204(0.01)
0.012(0.02)
0.375(0.01)
0.066(0.01)
89,7780.449

Standard errors are in parentheses. The sample for the estimation is a 1% random sample of individuals 2565 years old from the 1990 and 2000 Mexico Censo de Poblacio y Vivienda. Individuals with wages in thehighest or lowest 0.5% of wage values have been dropped (see text for details). The first two columns
show results for all wage earners. The second two columns show results excluding the self-employed.
Sampling weights were used in the 2000 census but not in the 1990 census. Accordingly, the 1990
regressions are unweighted while the 2000 regressions are weighted. See Table 1 for other details.

35

Table 3b: OLS Wage Regressions, Females in 1990 and 2000
Full Sample
w/o Self- Employed
Variable
1990
2000
1990
2000
Highest Grade
1 to 4
0.124
0.172
0.092
0.153
of Schooling(0.02)(0.02)(0.02)(0.02)
Completed
5 to 8
0.224
0.351
0.188
0.312
(0.02)(0.02)(0.02)(0.02)
9
0.459
0.542
0.438
0.493
(0.02)(0.02)(0.02)(0.02)
10 to 11
0.592
0.762
0.575
0.726
(0.02)(0.02)(0.03)(0.03)
12
0.736
0.865
0.718
0.819
(0.02)(0.02)(0.02)(0.02)
13 to 15
0.877
1.201
0.856
1.167
(0.02)(0.02)(0.02)(0.03)
16+
1.089
1.398
1.055
1.351
(0.02)(0.02)(0.02)(0.02)
Age
0.048
0.045
0.043
0.040
(0.00)(0.00)(0.00)(0.00)
Age Squared/100-0.051-0.046-0.045-0.039(0.00)(0.00)(0.01)(0.00)
Married
0.121
0.093
0.108
0.101
(0.01)(0.01)(0.01)(0.01)
Size of
500k+
0.268
0.319
0.184
0.279
Locality(0.02)(0.02)(0.02)(0.02)
100k-500k 0.227
0.266
0.143
0.230
(0.02)(0.02)(0.02)(0.02)
15k-100k
0.144
0.175
0.052
0.140
(0.02)(0.02)(0.02)(0.02)
2.5k-15k
0.123
0.131
0.039
0.115
(0.02)(0.02)(0.02)(0.02)
Border
0.277
0.416
0.235
0.347
(0.02)(0.02)(0.02)(0.02)
North
0.145
0.202
0.096
0.133
(0.02)(0.02)(0.02)(0.02)
Center
0.104
0.178
0.066
0.118
(0.02)(0.02)(0.02)(0.02)
Capital
0.179
0.249
0.145
0.199
(0.02)(0.02)(0.02)(0.02)

36

Table 3b Continued

YucatanManufacturing
Trans, Comm,
Elec, Water
Construction
Commerce
Public Admin.
Gen. Services
Restaurants,
HotelsSoc. Assist.
Repair,Domestic Serv.
N
R-Squared

0.00(0.03)-0.008(0.02)
0.178(0.03)
0.287(0.05)
0.007(0.02)-0.052(0.03)
0.183(0.03)
0.003(0.02)
0.124(0.02)-0.174(0.02)
26,5830.294

0.160(0.02)
0.003(0.02)
0.227(0.03)
0.167(0.04)-0.10(0.02)
0.171(0.02)
0.154(0.02)-0.018(0.02)
0.310(0.02)-0.135(0.02)
47,0080.475-0.026(0.03)-0.013(0.02)
0.166(0.03)
0.229(0.05)-0.091(0.02)-0.053(0.02)
0.136(0.03)-0.111(0.03)
0.113(0.02)-0.221(0.02)
21,9880.329

0.102(0.02)
0.01(0.02)
0.204(0.03)
0.129(0.04)-0.101(0.02)
0.162(0.02)
0.111(0.02)-0.118(0.02)
0.301(0.02)-0.162(0.02)
37,066
0.523

See Table 3a for details on the estimation.

37

Table 4: Changes in Mexico-U.S. Relative Wages, 1990-2000
Males
Mean

St. Dev.

FemalesMean
St. Dev.

Change in Log Wages 1990-2000:
Nominal Mexico Wages
Real Mexico Wages (CPI)
Nominal U.S. Wages
Real U.S. Wages (CPI)

0.291-0.1900.260-0.016

0.205
0.205
0.050
0.050

0.474
-0.006
0.300
0.024

0.258
0.258
0.055
0.055

Change in Log Mexico/U.S.
Wages 1990-2000:
Nominal Wages
Real Wages (CPI)

0.031-0.173

0.192
0.192

0.175
-0.030

0.242
0.242

This table shows changes in wages for a panel of synthetic cohorts in Mexico and the United States for two
years (1990, 2000), four 1990 age categories (16-25, 26-35, 36-45, and 46-55 years), seven education
categories (0-4, 5-8, 9-11, 12, 13-15, and 16+ years of schooling), and Mexico’s 32 states (U.S. cohorts aredefined for the nation as a whole). Nominal Mexico and U.S. wages are in terms of current U.S. dollars.

38

Table 5: Change in Log Real CPI Wages, 1990-2000
Real CPI Age in
Wages 1990
Mexico 16-25
Mex/USYears of
Males Females Education Males Females Region Males Females-0.125 0.087
4-0.341 -0.233 Border -0.053 0.081-0.113 0.020-0.288 -0.204-0.041 0.052

Mexico 26-35
Mex/US-0.182-0.157-0.031-0.0295-8-0.225-0.204-0.037-0.055North-0.187-0.170

0.043
0.016

Mexico 36-45
Mex/US-0.292-0.282-0.150-0.132

9-11-0.141-0.132-0.003-0.050Center

-0.222-0.202-0.042-0.065

Mexico 46-55
Mex/US-0.373-0.311-0.303-0.30812-0.083-0.076

0.043
0.009

Capital -0.193-0.183-0.018-0.040

MexicoMex/US

13-15

0.105
0.118

0.258
0.274

Yucatan -0.273-0.2520.023-0.001

MexicoMex/US

16+

0.021-0.067

0.129
0.045

South

-0.142-0.156-0.312-0.285This table shows the mean change in real CPI wages for Mexico and for Mexico relative to the U.S. by age,schooling, and region of Mexico. The sample is the panel of synthetic cohorts. See Table 4 for details.

39

Table 6a: Change in Log Wages 1990-2000 for Synthetic Cohorts, Males

W90,MX/W90,US
W00,US/W90,US(W90,MX/W90,US)*Border(W00,US/W90,US)*Border
BorderNorth
CenterCapitalYucatan
W90,MX(W90,MX)*Border
Age Cohort 26-35
Age Cohort 36-45
Age Cohort 46-55
Grades 5-8
Grades 9-11
Grade 12
Grade 13-15-0.027(0.06)
1.276(0.18)-0.221(0.09)
0.446(0.31)-0.256(0.21)
0.106(0.05)
0.071(0.04)
0.105(0.04)
0.006(0.05)-0.133(0.07)
1.202(0.18)-0.067(0.10)
0.538(0.31)
0.033(0.23)
0.106(0.05)
0.072(0.04)
0.098(0.04)
0.005(0.05)
0.096(0.03)-0.139(0.05)-0.015(0.22)-0.046(0.34)
0.05(0.08)
0.175(0.25)
0.391(0.18)
0.143(0.03)
0.108(0.03)
0.122(0.03)
0.003(0.04)-0.277(0.22)-0.148(0.04)-0.031(0.06)-0.064(0.09)-0.099(0.09)
0.129(0.04)
0.232(0.05)
0.398(0.11)
0.631(0.13)-0.027(0.17)-0.132(0.27)
0.008(0.09)
0.186(0.23)
0.099(0.19)
0.05(0.04)
0.052(0.04)-0.022(0.04)-0.015(0.04)-0.374(0.18)-0.133(0.04)-0.014(0.05)-0.032(0.08)-0.069(0.08)
0.143(0.03)
0.264(0.04)
0.450(0.09)
0.697(0.11)

40

Table 6a Continued

Grade 160.708
(0.23)

State GDP Growth
1993-99
Mfg. Share of State GDP
1993-99
Agr. Share of State GDP
1993-99
FDI Share of State GDP
1994-99
State Share of Maquila
Employment
Import Share of State GDP
1993-99
Km. to US BorderState-US Migration Rate
1955-59N
R-Squared

728
0.239

728
0.254

728
0.595

0.818
(0.18)
0.143(0.14)
0.009(0.16)-0.159(0.32)
2.821(1.12)
0.147(0.16)
1.506(0.75)-0.014(0.01)
3.281(0.46)
728
0.667This table shows regressions using as the dependent variable the 1990-2000 change in log wages forsynthetic age-education-state cohorts of males in Mexico. Standard errors are in parentheses. All wage
measures are in logs as is GDP used to calculate the 1993-1999 change in the variable. All share measuresare entered in levels. See Table 5 for more details on the age and education definitions for the cohorts.

41

Table 6b: Change in Log Wages 1990-2000 for Synthetic Cohorts, Females

W90,MX/W90,US
W00,US/W90,US(W90,MX/W90,US)*Border(W00,US/W90,US)*Border
BorderNorth
CenterCapitalYucatan
W90,MX(W90,MX)*Border
Age Cohort 26-35
Age Cohort 36-45
Age Cohort 46-55
Grades 5-8
Grades 9-11
Grade 12
Grade 13-15-0.452(0.05)
1.972(0.24)-0.181(0.10)-0.689(0.41)
0.234(0.21)
0.190(0.04)
0.116(0.04)
0.198(0.05)
0.154(0.06)-0.80(0.08)
2.046(0.23)
0.054(0.13)-0.683(0.40)
0.669(0.24)
0.191(0.04)
0.124(0.04)
0.199(0.04)
0.149(0.06)
0.269(0.04)-0.167(0.07)-0.237(0.25)
0.256(0.30)
0.216(0.11)-0.547(0.35)
0.90(0.21)
0.172(0.04)
0.130(0.03)
0.211(0.03)
0.133(0.04)-0.471(0.25)-0.173(0.05)
0.011(0.06)
0.023(0.08)-0.069(0.08)
0.209(0.03)
0.361(0.04)
0.570(0.10)
0.870(0.14)-0.23(0.23)
0.266(0.28)
0.092(0.11)-0.62(0.32)
0.611(0.21)
0.097(0.05)
0.118(0.05)
0.119(0.06)
0.163(0.05)-0.516(0.24)-0.156(0.05)
0.029(0.06)
0.044(0.07)-0.048(0.08)
0.211(0.03)
0.373(0.04)
0.590(0.10)
0.897(0.13)

42

Table 6b Continued

Grade 160.893
(0.22)

State GDP Growth
1993-99
Mfg. Share of State GDP
1993-99
Agr. Share of State GDP
1993-99
FDI Share of State GDP
1994-99
State Share of Maquila
Employment
Import Share of State GDP
1993-99
Km. to US BorderState-US Migration Rate
1955-59N
R-Squared

702
0.311

702
0.375

702
0.624

0.925
(0.21)-0.069(0.19)-0.02(0.20)
0.459(0.40)
4.208(1.38)
0.211(0.21)-0.326(0.90)
0.011(0.02)
2.287(0.73)
702
0.649

See notes to Table 6a.

43