Did trade liberalisation benefit women? The case of Mexico in the 1990s

Ernesto Aguayo-Téllez, Jim Airola, Chinhui Juhn 24 August 2010

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Promoting gender equality is one of the eight Millennium Development Goals of the United Nations (UN 2009). The potential paths to achieving this goal are many. An oft-cited path is to raise global awareness of the issue and to directly campaign for change. Another possibility may be to integrate poorer and less-developed economies into world markets by encouraging trade liberalisation.

This latter route merits further exploration. A large body of research documents the effect of trade liberalisation on skill premiums (see for example Robbins 1996, Wood 1997, Behrman et al. 2000)1. Among studies that examine gender outcomes, Oostendorp (2009) presents a cross-country analysis of the responsiveness of the gender gap to measures of trade and FDI. He finds that trade and FDI inflows reduce the gender gap among low-skilled occupations, while results are mixed for high-skilled occupations (see also Bussolo and De Hoyos 2009).

Are trade liberalisation policies moving us closer to the goal of gender equality?

In recent research (Aguayo et al. 2010), we examine the distributional impact of trade liberalisation policies across gender using data from Mexico.

Starting in 1990, Mexico switched its opening strategy from implementing unilateral tariff reductions to pursuing bilateral free trade agreements, which led to the signing of the North American Free Trade Agreement (NAFTA). NAFTA reduced Mexican tariffs from a maximum of 20% to zero with most of the reductions taking place immediately (Zabludovsky 2005). Owing to the bilateral nature of the agreement, US tariffs on Mexican exports were also reduced, especially in industries such as textiles and clothing.
Since more than 80% of Mexico's trade occurs with the US, the decline in tariffs on both sides of the border resulted in dramatic increases in trade flows. Non-oil exports as a percent of Mexico’s GDP increased from 7.4% in 1990 to 25.8% in 2000.

Mexico also implemented other reforms that are likely to have amplified the effects of trade liberalisation policies. Among these:

  • Restrictions on foreign ownership of assets were eased starting in 1989.

Before this change, foreign direct investment occurred exclusively through the “maquiladoras,” the export-assembly establishments which were largely foreign-owned (Hanson 2007). With the signing of NAFTA, not only did these firms continue to grow but foreign firms engaged in similar export assembly activity also increased.

  • In the agricultural sector, tariffs were reduced, price supports were eliminated, and the Mexican Constitution was amended to allow the “ejidatarios”, peasants who had worked the land, to gain property rights and be able to sell their land (McMillan et al. 2007).

The result was a dramatic change in industrial structure within a decade.

Table 1 shows the distribution of employment across major industries in 1990 and 2000, as well as the share of workers in the industry who were female. Notably agriculture and fishing declined from 15.1% in 1990 to 9.4% in 2000. Since women accounted for just 3% of the employment in these sectors, this negatively impacted men relative to women.

Table 1. Mexican industrial distribution

Industry
Year
 
Female
 
 
1990
 
2000
 
Share 1990
 
Agriculture & Fishing
 
15.1
 
9.4
 
3.0
 
 
Oil, Gas, Utilities
 
2.2
 
1.4
 
9.4
 
 
Construction
 
6.0
 
8.0
 
1.8
 
 
Manufacturing
 
18.9
 
18.4
 
18.7
 
 
Wholesale & Retail
 
15.7
 
16.2
 
26.4
 
 
Transportation and Storage
 
9.1
 
8.9
 
4.4
 
 
Communications
 
1.1
 
1.2
 
25.6
 
 
FIRE and Professional Services
 
5.6
 
6.7
 
24.6
 
 
Education & Health Services
 
13.0
 
13.1
 
47.7
 
 
Recreation, Hotel & Restaurants
 
4.3
 
5.3
 
33.3
 
 
Other Services
 
3.4
 
5.2
 
62.1
 
 
Government
 
5.4
 
6.1
 
21.8
 
 

Source: Mexican Census IPUMS, 1990 and 2000. The table reports shares of labour in efficiency units. Notes to Table 1: We use 10% samples of the Mexican Population Census of 1990 and 2000. We use men and women who are 15-64 years old, worked full time and did not have self-employment earnings to calculate wages. Women’s relative earnings have similar time pattern when we include self-employment earnings and part-time workers. To calculate employment and hours, we include all workers who are 15-64 years old and define groups by gender, 10 five-year age groups, and 5 education groups. To calculate efficiency units, we weight hours of each group by the average relative wage fixed across all years. To calculate wage bills by group, we multiply hours of each group in year t by the average wage of each group in year t.

Manufacturing employment was overall unchanged, but within manufacturing female-intensive industries, such as textiles, clothing, and computers and electronics, increased in size. One method of summarising these changes is to calculate “between-industry” and “within-industry” changes in female share (see paper for details). For example, tariff reductions associated with NAFTA may have increased the relative size of the manufacturing export sector that has a higher concentration of female workers. We report these between and within-industry shifts in Table 2.

Table 2 shows that the wage bill share of women increased 5.3 percentage points overall between 1990 and 2000. Women’s employment share increased approximately the same amount, indicating that most of the relative gain for women came through employment and not wages. Between-industry shifts account for about 40% of the total change in wage bill share, and 32% of the change in employment share. In other words, the between-industry component – which is consistent with trade-based explanations – can potentially explain a large amount of the total change.

Table 2. Employment and wage shares

Employment Share
 
Wage Bill Share
Between
Within
Total
 
Between
Within
Total
1.66
3.55
5.21
 
2.10
3.15
5.25

Source: Mexican Census IPUMS 1990 and 2000. Decompositions are based on 69 industry categories. Employment shares are reported in efficiency units.

Further analysis comparing across industries shows that tariff cuts and exports were positively related to industry growth. Women benefited since some of the fastest growing industries were female-intensive industries such as textiles and clothing. While tariff cuts alone cannot explain the rapid decline, women also benefited, in a relative sense, from the rapidly shrinking agricultural sector.

What about the rising female share within industries?

We also use establishment level data for the manufacturing sector to examine within-industry shifts in women’s wage bill share (the second component of the decomposition above)2. We find that, even controlling for detailed industry and maquiladora status, women’s wage bill share is positively related to exports by foreign establishments, suggesting that trade liberalisation further encouraged outsourcing and assembly-type activity.

While women’s relative earnings may have increased, does this mean women are any better off? Recent papers on household bargaining have rejected the common preference model of the household. For example, Lundberg et al. (1996) show that an exogenous shock to wife’s income altered household expenditures towards women’s and children’s clothing at the expense of men’s clothing and tobacco and alcohol.

The exogenous shift in relative incomes altered the bargaining position of the wife and shifted household expenditures towards goods reflecting her preferences. Bobonis (2009) also finds that cash transfers to the wife in the Mexican Progressa programme shifted expenditures towards children’s goods. Using the Mexican Household Income and Expenditure Survey (ENIGH) for 1992 and 2000, we find suggestive evidence that women’s bargaining power within the household improved along with their relative earnings. Household expenditures shifted from goods associated with male preference, such as men’s clothing and tobacco and alcohol, to those associated with female preference, such as education and women’s clothing.

Is Mexico’s case unique?

What lessons can we draw from Mexico’s experience? One important thing to consider is how trade liberalisation impacts different sectors. In Mexico’s case, NAFTA precipitated the decline of agriculture, a traditionally male-dominated sector, and encouraged exports in light assembly manufacturing, a sector that favoured female workers. Bussolo and De Hoyos (2009) provide interesting case studies of trade reforms in Senegal, Ghana, Uganda, and Honduras. In sub-Saharan Africa, the gender gap in earnings widened. This may be due to the fact that in these agriculture-based economies, men are better positioned to produce cash crops for export.

In contrast, Honduras had an experience similar to Mexico where women gained as trade reform encouraged exports in the manufacturing sector. The broader lesson appears to be that trade liberalisation could be an important tool for achieving gender equality, but as with other policies, the context cannot be ignored.

References

Attanasio, O, Pinelopi Goldberg, and Nina Pavcnik (2004), “Trade Reforms and Wage Inequality in Colombia”, Journal of Development Economics, 74:331-366

Aguayo, Ernesto, Jim Airola, and Chinhui Juhn (2010), “Did Trade Liberalization Help Women? The Case of Mexico in the 1990s”, NBER working paper 16195.

Airola, Jim, and Chinhui Juhn (2008), “Wage Inequality in Post-Reform Mexico”, Journal of Income Distribution, 17(1):110-135.

Attanasio, O, Pinelopi Goldberg, and Nina Pavcnik (2004), “Trade Reforms and Wage Inequality in Colombia”, Journal of Development Economics, 74:331-366.

Behrman, J, N Birdsall, and M Szekely (2000), “Economic Reform and Wage Differentials in Latin America”, Inter American Development Bank Working Paper No. 435.

Berman, E, J Bound, and Z Griliches (1994), “Changes in the Demand for Skilled Labour Within US Manufacturing: Evidence from the Annual Survey of Manufacturers”, Quarterly Journal of Economics, 109:367-398.

Bobonis, Gustavo (2009), “Is Allocation of Resources within the Household Efficient? New Evidence from a Randomized Experiment” , Journal of Political Economy, 117: 453-503.

Bound, J and G Johnson (1992), “Changes in the Structure of Wages in the 1980s: An Evaluation of Alternative Explanations”, American Economic Review, 82:271-392.

Bussolo, Maurizio, R De Hoyos (2009), “Introduction and Overview”, in M Bussolo and R De Hoyoy (ed.), Gender Aspects of the trade and Poverty Nexus, World Bank Press.

Cragg, Michael and Mario Epelbaum (1996), “Why has Wage Dispersion Grown in Mexico? Is it the Incidence of Reforms or the Growing Demands for Skills?”, Journal of Development Economics, 59:99-116.

Currie, Janet and Ann Harrison (1997), “Trade Reform and Labour Market Adjustment in Morocco”, Journal of Labour Economics, 15:S44-S71.

Feliciano, Zadia (2001), "Workers and trade liberalization: The impact of trade reforms in Mexico on wages and employment," Industrial and Labor Relations Review, 55(1): 95-115.

Hanson, Gordon, and Ann Harrison (1999), “Trade and Wage Inequality in Mexico,” Industrial Labour Relations Review, 52(2): 271-288.

Hanson, Gordon (2007), “Globalisation, Labour Income, and Poverty in Mexico”, in Ann Harrison (ed.), Globalisation and Poverty, University of Chicago Press.

Katz, Lawrence, and Kevin M Murphy (1992), “Changes in Relative Wages, 1963-1987: Supply and Demand Factors”, Quarterly Journal of Economics,107(1):35-78.

Lundberg, Shelly, R Pollak and T Wales (1997), “Do Husbands and Wives Pool Resources? Evidence from the UK Child Beneft”, Journal of Human Resources, 32: 463-479.

McMillan, M, A Awane, and N Ashraf (2007), “My Policies or Yours: Does OECD Support for Agriculture Increase Poverty in Developing Countries?”, in Ann Harrison (ed.), Globalisation and Poverty, University of Chicago Press.

Melendez, Jorge (2001), “The Structure of Wages under Trade Liberalization: Mexico from 1984 to 1998”, Ph.D. Dissertation, University of Chicago.

Oostendorp, Remco (2009), "Globalization and the Gender Wage Gap," World Bank Economic Review, vol. 23(1), pages 141-161, January.

Pavcnik, Nina (2003), “What Explains Skill Upgrading in Less Developed Countries?”, Journal of Development Economics, 71:311-328.

Revenga, Ana L (1997), “Employment and Wage Effects of Trade Liberalization: The Case of Mexican Manufacturing”, Journal of Labour Economics 15(3):S20-43.

Robbins, Donald J (1996), “HOS Hits Facts: Facts Win; Evidence on Trade and Wages in the Developing World”, Development Discussion Paper No. 557, H.I.I.D.

United Nations (2009), UN Millennium Development Goals Report 2009, United Nations.

Wood, Adrian (1997), “Openness and Wage Inequality in Developing Countries: The Latin American Challenge to East Asian Conventional Wisdom”, World Bank Economic Review, 11(1): 33-57.

Zabludovsky, J (2005), “El Tlcan y La Politica de Comercio Exterior en Mexico: Una Agenda Inconclusa”, Informacion Comercial Espanola (821): 59-70.
 


1 See studies of Mexico including Cragg and Eppelbaum (1996), Revenga (1997), Hanson and Harrison (1999), Melendez (2001), Feliciano (2001), and Airola and Juhn (2008). Currie and Harrison (1997), Pavcnik (2002), and Attanasio, Goldberg, Pavcnik (2004) examine trade and wages in Morroco, Chile, and Colombia respectively.

2 We use 1992 and 2001 samples of Encuesta Nacional de Empleo, Salarios, Tecnologia y Capacion (ENESTyC), a survey of establishments in the manufacturing sector. We thank INEGI officials for granting on-site access to this data under the commitment of complying with the confidentiality requirements set by the Mexican Laws and in particular, to Maria Luisa Meza Leon, Lizi Ivette Gonzalez Jimenez, and Gabriel Romero Velasco.

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Topics:  Development International trade Labour markets Poverty and income inequality

Tags:  development, gender inequality, international trade, Mexico

Professor of Economics at Universidad Autónoma de Nuevo León

Graduate in Economics of the University of Houston

Professor of Economics at the University of Houston

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