EFFECT OF NAFTA ON MEXICO´S WAGE INEQUALITY

Abstract

One of the benefits that the signing of the North American Free Trade Agreement (NAFTA) would bring to the country was the reduction of large differences in wages as a result of the increase in productivity. The present study measures the effect of demographic, labor, and sector variables on Mexico?s wage inequality during the period 1988 to 2017, as well as the impact that the incorporation to NAFTA has had. Through a fixed effects model, it was found that the increase in the proportion of people working in the service and agricultural sectors increased the wage gap, as well as the people who occupy managerial positions, since they obtained a relative salary higher than the average. Despite the expected results of NAFTA, this economic trade integration increased the wage differential in Mexico and these levels are invariant over time, giving way to proposals to change the minimum wage.