The decline of the labour share in Mexico, 1990-2015.

Position:Research brief
 
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FINDINGS

The labour income share in Mexico experienced a long-term decline between 1990-2015 which affected the major sectors of the economy

The labour income share declined because of reductions in the wage share within the modern segment of the different economic sectors, except agriculture

The lagging productivity of the informal non-tradable sector of the economy is a crucial factor in the fall of the labour share in the formal sectors

The stagnant productivity of self-employment has put downward pressure on wages elsewhere in the economy. The productivity gains in the formal segments of the tradable and non-tradable sectors have then accrued to profits

The manufacturing wage share was also affected by the decline seen in the US manufacturing labour share since the early 2000s

A higher profit share may accelerate capital accumulation, contract the informal sectors, and eventually reverse the fall in the labour income share. In Mexico this self-correcting mechanism has failed, with the country remaining in a low-growth path despite the rising profit share

As with many other developed and emerging economies, in recent decades Mexico has experienced a long-term decline in the labour income share. The decline is observed in both the share of wages in value added and in more comprehensive measures that include the labour income of the self-employed. What are the factors behind this decline?

The labour income share has declined

The decline in the labour income share in Mexico is mostly explained by reductions within each sector rather than changes in the composition of value added between sectors. This is true for the whole private business economy, where the changes in employment composition took place mainly between sectors with relatively high labour income shares. The wage share also declined in manufacturing--particularly in the more recent period 2002-15--in 19 out of 20 industries.

The decline is observed in both a narrow indicator--the share of wages in value added--and in more comprehensive measures that include the labour income of the self-employed: one in which the labour income of the self-employed in a given sector is assumed equal to the wages of subordinated workers in the same sector, and the other in which self-employment income is assumed to originate fully in labour activity. The decline in these alternative measures is observed in the private business sector as a whole, and also in each of its major areas--tradables and...

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