ECONOMIC INTEGRATION AND INDUSTRY LOCATION: Mexico-U.S. Integration and the Structure of Wages in Mexico 2

An important question is how Mexico-U.S. trade, in general, and the growth of maquiladoras, in particular, will affect the relative demand for different factors of production in the two countries. In the United States, the impact of trade with low-wage countries on the earnings of U.S. workers has received considerable attention. Over the last two decades, the earnings of more-skilled workers have risen dramatically relative to the earnings of less-skilled workers, which many observers attribute at least partially to expanded U.S. trade with the developing world (Freeman, 1995). Interestingly, during the 1980’s Mexico also experienced a large increase in the relative earnings of more-skilled workers. Over the period 1986-1990, the wages of manufacturing workers in the 90th wage percentile increased by 16 percent relative to those in the 10th wage percentile (Feliciano, 1993). This rise in wage inequality coincided with the opening of the Mexican economy to trade and large inflows of foreign direct investment from the United States. Electronic Payday Loans Online

To examine the relationship between globalized production, as exemplified by the growth of U.S.-owned maquiladoras in Mexico, and wage inequality, Feenstra and Hanson (1996) develop a model of foreign outsourcing, in which firms in the ski 11-abundant North (the United States) use firms in the nonskill-abundant South (Mexico) to produce intermediate inputs. We imagine a situation where production involves many different stages, such as design, parts production, and assembly, each of which differ in the intensity with which they require skilled labor.