Job Market Paper
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.
Presented at: ITAM Alumni Conference (August 2021), SED (June 2022)
Understanding Domestic Outsourcing: The Role of Smoothing Demand for Workers
with León Fernández Bujanda
This paper 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.
Minimum Wage, Informality, and Earnings Inequality: Evidence from Mexico
with Egor Malkov
What are the implications of a decline in the minimum wage for earnings inequality in an economy with a sizable informal sector?
We address this question by using rich administrative matched employer-employee data and survey data from Mexico, a country where almost half of the workers are informally employed, combined with an equilibrium search model of the labor market. Between 1988 and 1996, the Mexican economy witnessed two opposite trends: a 61 log point increase in P90-P10 earnings inequality in the formal sector was accompanied by a 48 log point decline in the real minimum wage. On the empirical side, we show that the minimum wage spillover effects reach up to the 70th percentile of the earnings distribution. Next, using the AKM decomposition, we find that the variance of worker fixed effects accounts for about 60% of the total variance of log earnings. Finally, using the model that features both formal and informal sectors, we evaluate the effects of the minimum wage decline on the earnings distribution in the formal sector, employment, and output in Mexico.