Essays On Sectoral Mobility And Inequality

Abstract

This dissertation consists of three chapters. In the first chapter I study what are the effects of exposure to international export competition on welfare, wages, and sector mobility. Using a massive, matched employer-employee dataset from Mexico, I study how the spectacular rise of China as a manufacturer exporter affected exporting industries in the Mexican economy. By exploiting industry shocks to export competition with China, I find that displaced individuals in exposed industries have an initial wage loss of 22 percentage points larger than displaced workers from non-exposed industries. I rank workers according to their pre-shock income and find that high-income workers laid off from exposed industries suffer around 70 percent larger losses than displaced workers in non-exposed industries. Displaced workers who are at the bottom of the pre-shock income distribution suffer minimal wage losses independently of their industry. To rationalize my findings and evaluate the distributional effects of affected workers, I build and analyze a competitive search model with sector-specific human capital, transferable human capital, search frictions, and minimum wage schedule. In the counterfactual exercises, I find that the minimum wage can account for the observed wage losses at the bottom of the income distribution, but it fails to explain the losses in the upper parts of the distribution. I show that the degree of transferability of human capital across sectors is crucial to explain why median- and high-income workers in exposed industries suffer larger losses. In the main quantitative experiment, I compare an economy with and without the shock and find that the larger the human capital accumulated in the exposed sector, the larger the welfare losses. High-income workers suffer a 35 percent welfare decline, and low-income workers suffer a 1 percent decline. In the second chapter is written jointly with Egor Malkov. In this chapter we study the dynamics of earnings inequality in Mexico, focusing on the period between 1988 and 2000. Our findings reveal a significant decline in the minimum wage by over 50 log points during this period, which is closely mirrored by a substantial increase in the variance of log earnings by nearly 70 log points. The data further underscores the pronounced impact on the lower end of the earnings distribution, with the P50-P10 wage differential escalating by approximately 40 log points from 1988 to 1994. In contrast, the P90-P50 wage differential exhibited a rise of 20 log points. Our analysis also differentiates between firms based on their proximity to the minimum wage. Firms closer to paying the minimum wage witnessed a sharper increase in earnings variance, approximately 20 log points between 1988 to 1994, compared to their counterparts further from the minimum wage, which saw an increase of around 10 log points. Utilizing the AKM decomposition, we observe that worker effects have experienced a decline in explained variance, dropping from 0.48 to 0.39, and the percentage contribution to earnings variance decreased from 69\% to 61\%. While worker effects have shown significant fluctuations, firm effects, though crucial, have remained relatively stable throughout the studied period. Finally, in the third chapter is written jointly with León Fernández Bujanda. This chapter studies the impact of domestic outsourcing and time-varying idiosyncratic risk at the firm level on welfare, output, and workers' wages. To study this question, we exploit a recent policy change in Mexico that prohibits hiring “core-activity” workers through outsourcing. Our event-study design shows that workers who were previously hired through outsourcing increase their wages by approximately 9 log points relative to similar workers who were not outsourced before the policy intervention. We build a tractable directed search model with firm dynamics and time-varying idiosyncratic risk in which firms can decide how many workers to hire in-house and how many to outsource. We show that transitory shocks are important to account for the demand for outsourced workers. The model shows outsourced workers experience less unemployment risk without the presence of the outsourcing sector but a lower probability of finding jobs, creating ambiguous results on welfare. Finally, we use the model to study the short-run and long-run welfare consequences of the policy.