Market Liberalization , Labor Unions and Real Wages in Mexico , 1984 - 1998 Nathaniel

Mexico has undergone a dramatic market liberalization since facing major debt problems in the early 1980s. The restructuring has coincided with a decline in unionization and, surprisingly, a steady increase after 1989 in the union-nonunion wage gap. I conduct an analysis using cross-sectional data from 1984 to 1998 to show that these trends are attributable to unions rather than changes in the distributions of fixed worker characteristics. I suggest three explanations for these simultaneous trends: increasing union prioritization of wages over employment, a “survival of the fittest selection effect,” and politically motivated wage increases in the public sector. I am unable to directly test the first explanation, I find no evidence in favor of the selection effect, and I find some significant evidence in favor of higher public sector wages, albeit indirectly due the lack of data on public employment. The changes in the union sector, overall, made relatively small contributions to changes in Mexico’s real wages. I would like to express my deepest gratitude to John Pencavel for the guidance and criticism he provided throughout all stages of the project. I also wish to thank David McKenzie for his valuable assistance with the data. Finally, I thank my parents for their patience and support.