No. 21 Effects of Trade Liberalization on the Gender Wage Gap in Mexico by Raquel Artecona and Wendy Cunningham

The implications for increased globalization on women's wages and employment are not well understood due to scarce empirical evidence. Gary Becker's 1971 thesis on discrimination suggests that a positive effect of trade liberalization may be that it increases competition among firms thereby eliminating the profits that allow employers to discriminate in wages against women. This paper tests this hypothesis by using household level data to examine the change in women's wages - relative to men's - in the Mexican manufacturing sector over the trade liberalization period 1987-1993. Unconditional wage comparisons show that women earn lower wages than men in the post-liberalization period and that women in industries that were more exposed to trade earn less than men after the liberalization process. However, using a difference-in-differences methodology and the conditional gender wage gap, we are able to separate the discrimination component from the skills component. Our findings suggest that the increased differential in wages is due to a higher premium to those skills that men are more likely to have since discrimination decreases with trade openness. Thus, trade liberalization may eliminate the means to discriminate against women in wages, but it enhances the costs of skill differentials between men and women.

This paper is part of a series of papers on selected topics commissioned for the forthcoming Policy Research Report(PRR) on Gender and Development. The PRR is being carried out by Elizabeth King and Andrew Mason and co-sponsored by the World Bank’s Development Economics Research Group and the Gender and Development Group of the Poverty Reduction and Economic Management Network. Printed copies of this paper are available free from the World Bank, 1818 H Street NW, Washington, DC 20433. Please contact Owen Haaga, in room MC8-434 or at Gnetwork@worldbank.org. Comments are welcome and should be sent directly to the author(s) at wcunningham@worldbank.org.