Inequality and Minimum Wage Policy: Not Even Talking, Much Less Walking in Mexico

Thursday, 2 July 2015: 2:15 PM-3:45 PM
TW2.1.04 (Tower Two)
Alice Krozer, University of Cambridge, Cambridge, United Kingdom; University of Stanford, Palo Alto, CA
Juan Carlos Moreno-Brid, UNAM, Mexico City, Mexico
Inequality and minimum wage policy: Not even talking, much less walking in Mexico

Alice Krozer, PhD Candidate in Development Studies, University of Cambridge, and

Juan Carlos Moreno-Brid, PhD Cantab, Deputy Director, Economic Commission for Latin America and the Caribbean, Subregional Headquarters in Mexico

(Abstract for a Paper to the SASE Conference, London, July 2015)

CONTEXT: Since the mid 1980s, Mexico has embarked on a process of radical macroeconomic reforms aimed – as the government has tirelessly stated – at eliminating the acute distortions in resource allocation brought about by decades of State intervention, trade protection and non-focalized poverty programs. As it is well recognized, this strategy has so far failed to secure a path of high and sustained economic growth and a significant reduction in poverty. Indeed, in 1990-2014 the country's real GDP grew on average at a clearly insufficient pace of 2.2%. Moreover, today more than half of its population is poor. Not much is known about the evolution of inequality during this period, besides the fact that some of the richest men in the world are Mexicans. How has the distribution of income evolved in these decades – among individuals and between wages and rents or profits? How much of its evolution is determined by economic or social policies? These are important questions, still unanswered, that are tackled in our paper.

AIM: The aim is threefold. The first is to examine the evolution of economic inequality in Mexico in the last three decades, both in terms of the personal distribution and the functional distribution of income. For this purpose we build and analyze alternative indicators, among them the Gini coefficient, the "Palma" ratio, as well as the share of wages relative to rents/profits. The second purpose of our paper is to analyze the relation between the evolution of the functional distribution of income, employment and labor policy, with special emphasis on minimum wage policy. Finally our third objective, closely linked to the previous two, is to examine the institutional context as well as the ideological and political economy considerations that have marked minimum wage policy in Mexico. In this regard our analysis will pay special attention to events since May 1, 2014, when the Governor of Mexico City launched a national discussion on the urgent need, ways and means to renovate minimum wage policy in Mexico. In our view, this debate is so far the only expression in Mexico of the current re-found concerted focus on inequality on a global scale, an expression that has woken up fierce opposition from the Mexican elite.

RESEARCH QUESTIONS: How has inequality evolved in Mexico in the last three decades in terms of the personal as well as of the functional distribution of income? How is their evolution related to changes in labor policies, particularly in minimum wage policy? And finally, what are the political economy, ideological or economic considerations behind the fact that labor policy in Mexico has allowed a persistent and major deterioration in minimum wages to the extent that their value in real terms is today 70% lower than in 1980 and way below the line of absolute poverty?

METHODOLOGY: The study will make use of a variety of qualitative, historical, and quantitative data.

ANTICIPATED FINDINGS: The main conclusions that we expect to find from this investigation are the following: Firstly, the paper will produce consistent time series of the evolution of personal and functional distribution of income in Mexico. These results will likely show an, albeit small, long-term reduction in income inequality in terms of its personal distribution of income but not necessarily in terms of is functional distribution. Secondly, the statistical part of the paper will show the effects of labor policies, particularly minimum wage policy, on the evolution of income distribution. Finally, the paper will identify and make evident the significant weight of the highly ideological and political content of the adverse reactions to changes in minimum wage policy as opposed to technical objections. The paper will make clear that, considering the low cost and easy-applicability of new minimum wage policies (among many other possible measures in the labor market) for income equality, the main reason behind the reluctance and failure to apply equalizing policies is the lack of political will by key political actors to change the situation. By illuminating these issues our paper will hopefully serve as input to the much needed debate towards putting in place a new policy firmly committed to equality, particularly in the labor market.