CIPR | Center For Inter-American Policy & Research

Tulane University

The rise and fall of inequality in Mexico: 1989-2010

Working document:

“The rise and fall of inequality in Mexico: 1989-2010.” by Campos, Esquivel and Lustig (WIDER, WP2012-010, January).

Inequality in Mexico rose between 1989 and 1994 and declined between 1994 and 2010. We examine the role of market forces (demand and supply of labour by skill), institutional factors (minimum wages and unionization rate), and public policy (cash transfers) in explaining changes in inequality. We apply the re-centered influence function method to decompose changes in hourly wages into characteristics and returns. The main driver is changes in returns. Returns rose (1989-1994) due to institutional factors and labour demand. Returns declined (1994-2006) due to changes in supply and —to a lesser extent— in demand; institutional factors were not relevant. Government transfers contributed to the decline in inequality, especially after 2000.

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