Trade liberalization and wage inequality in Mexico

During the 1980s in Mexico the wage gap between skilled and unskilled worke rs widened. The authors assess the extent to which this increased wage ineq uality was associated with Mexico's sweeping trade reform in 1985. Examinin g data on 2,354 Mexican manufacturing plants for 1984-90 and Mexican Indust rial Census data for 1965-88, they find that the reduction in tariff protec tion in 1985 disproportionately affected low-skilled industries. Goods from that sector, the authors suggest, may have fallen in price because of incr eased competition from economies with reserves of cheap unskilled labor lar ger than Mexico's. The consequent increase in the relative price of skill-i ntensive goods could explain the increase in wage inequality.