The Case of Mexico Nora Lustig Samuel Z. Stone Professor and - PowerPoint PPT Presentation

In Inequality in in the Gia iants: The Case of Mexico Nora Lustig Samuel Z. Stone Professor and Director, Commitment to Equity Institute Tulane University Nonresident Fellow CGD and IAD WIDER Helsinki, September 19, 2015

Sources • Esquivel, G., N. Lustig and J. Scott “Mexico : A Decade of Falling Inequality: Market Forces or State Action?,” Chapter 6 in Luis Felipe López-Calva and Nora Lustig, eds., Declining Inequality in Latin America: A Decade of Progress? , Brookings Institution Press, Washington, DC and United Nations Development Programme (UNDP), New York, 2010. • Campos, R., G. Esquivel and Nora Lustig “The Rise and Fall of Income Inequality in Mexico, 1989 –2010,” Chapter 7 in Giovanni Andrea Cornia, ed., Falling Inequality in Latin America: Policy Changes and Lesssons , WIDER Studies in Development Economics, Oxford University Press, Oxford, United Kingdom, January 2014. • Campos, R., L. F. Lopez-Calva and N. Lustig “Declining Wages for College-Educated Workers in Mexico: Degraded Tertiary or Skills Obsolescence ?,” forthcoming. • New project: Inequality in the Giants: The Case of Mexico. Team: Facundo Alvaredo, Raymundo Campos and Nora Lustig 2

Th The ris rise of f in income in inequality in in th the 1990s and th the fall ll in in th the 2000s (Lustig, Lopez-Calva & Ortiz“Declining Inequality in Latin America in the 2000s: The Cases of Argentina, Brazil, and Mexico,” World Development , Vol. 44, 129-141, 2013.) Average of increase Average of decrease 10.0 8.3 6.1 4.2 4.0 3.7 5.0 2.9 1.5 1.6 2.4 3.0 0.8 0.7 0.1 0.0 -2.9 -3.1 -5.0 -4.6 -4.1 -4.7 -4.5 -7.4 -6.5 -10.0 -8.5 -10.7 -11.3 -12.2 -15.0 -15.4 -20.0 1992-2002 2002-2013 1997-2000 2000-2012 1985-2001 2001-2012 1992-1998 1998-2011 1995-2001 2001-2012 1989-2000 2000-2012 1993-2001 2001-2009 1989-2001 2001-2012 1997-2003 2003-2011 1997-2003 2003-2012 1992-2000 2000-2012 1992-2002 2002-2006 Argentina Bolivia Brazil Chile SLV MexicoNicaragua PanamaParaguay Peru Uruguay Venezuela

Mexic ico: Decli line in in In Inequali lity (Gin ini) Campos, R., G. Esquivel and N. Lustig. 2014. “The Rise and Fall of Income Inequality in Mexico, 1989– 2010, ” Chapter 7 in Giovanni Andrea Cornia, ed., Falling Inequality in Latin America: Policy Changes and Lesssons , 4 WIDER Studies in Development Economics, Oxford University Press,

Mexico: Decomposition of overall inequality, 1994, 2000, 2004, 2006 and 2010 Mexico:% Marginal% Effect% on% Gini% Coefficient% by% Income% Source% 0.05% 0.04% 0.03% 0.02% 0.01% 0.00% Labor% Income% Own% Bus.+Rents Transfers% RemiAances% +Pensions% !0.01% !0.02% 1994% 2000% !0.03% 2004% 2006% !0.04% 2010% !0.05% !0.06% 5

Mexico: Rising role of transfers Campos, R., G. Esquivel and N. Lustig. 2014. “The Rise and Fall of Income Inequality in Mexico, 1989– 2010, ” Chapter 7 in Giovanni Andrea Cornia, ed., Falling Inequality in Latin America: Policy Changes and Lesssons , WIDER Studies in Development Economics, Oxford University Press,

In Inequalit ity Trends: Determinants • Decomposition: • Wage Structure Effect Equalizing • Composition Effect Slightly Unequalizing “ paradox of progress”((Bourguignon, Ferreira & Lustig, 2005) • Wage structure effect: • Increase in relative supply of skilled workers • Minimum wages and unionization no effect • Degraded tertiary or skills obsolescence? 7

Mexico: Relative returns and relative supply, 1989-2010 (High school and more vs. secondary or less) Mexico: Decline in skill premium coincides with the expansion of the relative supply of workers with post secondary education Campos, R., G. Esquivel and N. Lustig. 2014. “The Rise and Fall of Income Inequality in Mexico, 1989– 2010, ” Chapter 7 in Giovanni Andrea Cornia, ed., Falling Inequality in Latin America: Policy Changes and Lesssons , WIDER Studies in Development Economics, Oxford University Press,

In contrast to Brazil & other countries, in Mexico minimum wages were flat and no rise in unionization rate Real Minimum Wage and Unionization: 1988-2010 A. Real Minimum Wage Index (December B. Unionization Rate 2010=100) 200 .2 .18 180 Unionization Rate .16 160 .14 140 .12 120 .1 100 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 Year 1988m1 1992m1 1996m1 2000m1 2004m1 2008m1 2010m12 ENIGH ENOE Year Campos, R., G. Esquivel and N. Lustig. 2014. “The Rise and Fall of Income Inequality in Mexico, 1989– 2010, ” Chapter 7 in Giovanni Andrea Cornia, ed., Falling Inequality in Latin America: Policy Changes and Lesssons , WIDER Studies in Development Economics, Oxford University Press,

Figure 3: Difference in Log Hourly Wage. Base Period 2008:1. 10 0 -10 -20 -30 2000q2 2001q2 2002q2 2003q2 2004q2 2005q2 2006q2 2007q2 2008q2 2009q2 2010q2 2011q2 2012q2 2013q2 2014q2 2015q2 Year - Quarter All Primary or Less Junior High School High School College 10

Evidence 4: Average Log Wage by Cohort Consistent with both hypotheses: wage declines for older workers and recent entrants Year Cohort 2000 2002 2004 2006 2008 2010 2012 2014 1950-1954 4.29 4.28 4.19 4.25 4.16 4.14 3.99 3.90 Oldest workers ↓40% 1955-1959 4.17 4.22 4.18 4.16 4.15 4.01 4.00 3.92 1960-1964 4.11 4.13 4.11 4.16 4.17 4.03 3.96 3.97 1965-1969 4.12 4.14 4.08 4.13 4.09 3.97 3.95 3.94 Youngest workers: 1970-1974 3.96 4.06 4.01 4.05 4.07 3.98 3.96 3.96 1. Start with a lower salary 1975-1979 3.75 3.83 3.86 3.92 3.97 3.86 3.89 3.84 2. Wages do not fall over time 1980-1984 3.74 3.75 3.72 3.77 3.79 1985-1989 3.56 3.54 3.58 Notes: Authors’ calculations using quarterly Labor Force Surveys from 2000 to 2014. Earnings are in constant Mexican Pesos 20 14:1. Earnings refer to full-time workers (at least 30 weekly hours of work) ages 23-65 with a valid wage. It includes all workers: salaried, self-employment and owners. Earnings below and above the 1 and 99 percentile (within gender and education group) are dropped

Caveat: Story does not in inclu lude top in incomes • Merrill Lynch’s 4,400 individuals (roughly 0.001% of total population) with a net worth of US$30 million or more with an average wealth of US$500 million • Approximately US$600,000/month • Forbes’ 30 billionaires • Approximately US$15 million/month • Forbes’ Carlos Slim US$35 billion • Approximately US$150 million/month Note: estimating by assuming a 5% return on assets • Average income of two richest households in Mexican HH surveys around US$45,000/month ; Brazilian, roughly US$80,000/month • => What do we know about trends in top incomes and how much top incomes are taxed? 12

New Project: In Inequality in in th the Gia iants: : th the Case of f Mexi xico (W (WID IDER, Alv lvaredo, , Campos & Lustig) • Incorporating income from capital/top incomes • Labor market dynamics: skill premia and their determinants; linking to global trends • Education: when will the paradox of progress end? • Profile of fiscal redistribution 13

Thank you! 14