Investigators: CDEP Director Eric Verhoogen, David Kaplan of the Inter-American Development Bank, and Judith Frías of the Instituto Mexicano del Seguro Social.
A large body of empirical work has documented that firms that export pay higher wages on average than firms that do not export in the same industry. Is this because jobs in exporting plants pay higher wages than the same individuals would earn elsewhere on the labor market? Or is it just that exporting plants hire the sort of employees who would earn high wages in any firm they went to? These question matter both for figuring out the relationship between trade liberalization and increasing wage inequality – which have often occurred together in developing countries, to the puzzlement of many economists – and for evaluating whether exporting jobs are particularly “good jobs” that policy-makers should seek to promote. In this project, the authors take advantage of detailed administrative records on the wage histories of individual workers in Mexico, together with survey data that tracks manufacturing plants over time, to answer these questions, using the late-1994 peso devaluation as a source of variation in export behavior. The results suggest that the lion’s share of the relative increase in average wages among exporters in response to the devaluation can be attributed to changes in wage premiums – wages in excess of what individual workers would receive elsewhere on the labor market – rather than to changes in the composition of the workforce in the plants.