Labor Productivity Convergence in Mexico

Abstract

Mexico exhibits the lowest labor productivity of all OECD countries and main groups of nations. However, little is known about its behavior at the sector-state level, or whether it was affected by the global financial crisis (GFC). Therefore, this paper explores the extent to which the GFC affected the convergence—catch-up—process of seventeen Mexican economic sectors in the 1999–2014 period. Moreover, this paper identifies the regions that were more affected by the GFC and analyzes whether the sectoral composition is driving the states’ labor productivity convergence patterns. Results suggest that the GFC pushed 13 economic sectors toward convergence and changed the direction of the pre-GFC catch-up trend in 15; that the labor productivity convergence pattern barely changed in the north of Mexico in the short term, and that the biggest changes occurred in the center and south regions; and that states’ sectoral composition drives their labor productivity patterns.

Keywords:

• Convergence analysis
• economic sectors
• financial crisis
• labor productivity
• regional disparities

JEL CLASSIFICATIONS:

• E24
• J24
• O47
• R11

Acknowledgements

The author wishes to thank Saroj Bhattarai, Ayşegül Şahin and two anonymous reviewers for their comments on this paper. The author acknowledges that this material is based upon work supported by a ConTex fellowship from the University of Texas System and the Consejo Nacional de Ciencia y Tecnología de México (CONACYT).

Notes

1 See, for instance, Baiardi and Morana (2018), Campos-Vázquez and Lustig (2017), Campos-Vázquez and Rodas-Milian (2019), Chetty et al. (2014), Chetty, Hendren, and Katz et al. (2016), Kennedy et al. (2017), Madariaga, Martori, and Oller (2019), Márquez, Lasarte-Navamuel, and Lufin (2018), Tammaru et al. (2019).

2 An economic sector corresponds to the North American Industrial Classification System (NAICS) two-digit level. As usual, two-digit levels 31, 32 and 33 are grouped as Manufacturing sector, and 48 and 49 are grouped as Transportation and Warehousing economic sector.

3 The benefits of NAFTA have been largely debated (see, for instance, Blecker 2014; Galbraith 2014, among others). However, despite one of its expected results was to find a reduction on migratory flows from Mexico to the USA due to the stronger conditions in Mexico, making people stay rather than moving, there is evidence showing that migratory flows did not stop rising because of such trade liberalization but for the latest GFC (García-Zamora 2014). This also has implications on the labor productivity dynamics of the countries, in particular, for those closely related to the USA, as it is with Mexico.

4 Sarmiento Reyes and Ramón (2009) presents an exhaustive Table 1 describing previous literature on Mexico’s income convergence.

5 The North encompasses Baja California, Chihuahua, Coahuila, Nuevo León, Sonora and Tamaulipas; the North-Center includes Aguascalientes, Baja California Sur, Colima, Durango, Jalisco, Michoacán, Nayarit, San Luis Potosí, Sinaloa and Zacatecas; the Center considers Ciudad de México, Estado de México, Guanajuato, Hidalgo, Morelos, Puebla, Querétaro and Tlaxcala; and the South, Campeche, Chiapas, Guerrero, Oaxaca, Quintana Roo, Tabasco, Veracruz and Yucatán.

6 As a standard, labor productivity is estimated as the ratio of the total value of gross total product and total employed labor force in each state.

7 Patterson et al. (2016) follows, in general, the insight of loss by labor misallocation of Hsieh and Klenow (2009), among others.

Additional information

Notes on contributors

Francisco A. Castellanos-Sosa

Francisco A. Castellanos-Sosa is a doctoral student at the University of Texas at Austin.