The Manufacturing Wage Gap: Mexico and the United States

The main purpose of this article is to estimate the pace and extent of the manufacturing wage gap between Mexican and U.S. production and nonsupervisory workers. It also evaluates a main tenet of international trade, putting to the test the factor price equalization (FPE) theorem for the preNAFTA (North America Free Trade Agreement) period of 1987–1994 and two NAFTA sub-periods, 1995–2006 and 2007–2013. According to the aforementioned theorem, trade openness should render wages in both countries comparable and eventually convergent. The estimation technique used to test this theorem relies on an error correction model in a time series setting, using monthly data. The introduction of a real exchange rate as an exogenous variable becomes relevant. The author finds a substantial wage gap between production workers in the two countries, as convergence has not taken place. As a result, the FPE theorem is not valid for the present case. The wage gap between production workers continues to be substantial, with a tendency to expand.