How Mexico's Financial Crisis Affected Income Distribution

July 2000 - After Mexico's financial crisis in 1994, the distribution of income and labor earnings improved. But financial income and rising labor earnings in higher-income brackets are growing sources of inequality in Mexico. After Mexico's financial crisis in 1994, the distribution of in...

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Main Author: Salinas, Angel
Format: eBook
Language:English
Published: Washington, D.C The World Bank 1999, 1999
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Collection: World Bank E-Library Archive - Collection details see MPG.ReNa
Summary:July 2000 - After Mexico's financial crisis in 1994, the distribution of income and labor earnings improved. But financial income and rising labor earnings in higher-income brackets are growing sources of inequality in Mexico. After Mexico's financial crisis in 1994, the distribution of income and labor earnings improved. Did inequality increase during the recession, as one would expect, since the rich have more ways to protect their assets than the poor do? After all, labor is poor people's only asset (the labor-hoarding hypothesis). In principle, one could argue that the richest deciles experienced severe capital losses because of the crisis in 1994-96, and were hurt proportionately more than the poor were. But the facts don't support this hypothesis. As a share of total income, both monetary income (other than wages and salaries) and financial income increased during that period, especially in urban areas. Financial income is a growing source of inequality in Mexico.
Mexico's economy had a strong performance in 1997. The aggregate growth rate was about 7 percent, real investment grew 24 percent and exports 17 percent, industrial production increased 9.7 percent, and growth in civil construction (which makes intensive use of less skilled labor) was close to 11 percent. Given those figures, it is not surprising that the distribution of income and labor earnings improved, but the magnitude and quickness of the recovery prompted a close inspection of the mechanisms responsible for it. Lopez-Acevedo and Salinas analyze the decline in income inequality after the crisis, examine income sources that affect the level of inequality, and investigate the forces that drive inequality in Mexico. They find that in 1997 the crisis had hurt the income share of the top decile of the population mainly by reducing its share of labor earnings. Especially affected were highly skilled workers in financial services and nontradables.
Results from 1998 suggest that the labor earnings of those workers recovered and in fact increased. Indeed, labor earnings are a growing source of income inequality. This paper-a product of the Economic Policy Sector Unit and Mexico Country Office, Latin America and the Caribbean Region-is part of the Bank's study of earnings inequality after Mexico's economic and educational reforms. The authors may be contacted at gacevedo@worldbank.org or asalinas@worldbank.org
Physical Description:Online-Ressource (1 online resource (38 p.))