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01 December 2020

Mexico's economic growth fails to raise most people's incomes

Despite an eightfold increase in worker productivity over the last two centuries, real wages for most Mexicans have little more than doubled, new research reveals

Mexican street peddler

The common assumption that an increase in worker productivity will result in a concurrent increase in living standards does not ring true for Mexico.

According to new research conducted by Dr Ingrid Bleynat and Dr Paul Segal from the King’s Department of International Development and co-author Dr Amílcar E Challú, economic development in Mexico has coincided with languishing living standards for the majority and an increased concentration of income amongst a rich minority.

We knew that inequality was high in Mexico, and we wanted to find out what this implied for the majority of Mexicans. As we suspected, we found that for long periods economic growth just hasn’t reached most people

Paul Segal

While Mexico’s GDP rose between 1800 and 2015 its population also expanded rapidly. The authors point to population growth coupled with insufficient investment, leading to the capitalist sector’s failure to absorb excess workers, as the cause of stagnating wages.

Utilising three datasets—a new subsistence price index over the period, a wage series for urban unskilled construction workers in Mexico City, and national median incomes—the authors were able to compare individual incomes to productivity.

Their results illustrate a stark increase in inequality as GDP grew, leading the authors to reaffirm that “human welfare depends primarily on income growth for people, not for countries”.

Conversely, one period of Mexico’s history known as the ‘Mexican miracle’ bucks this trend. Between the 1950s and 1970s GDP and wages rose concurrently and substantially.

This period was one of industrialisation, state-led development and subsidies, leading to improved real wages and a decrease in inequality. It had an active civil society, but was dominated by an authoritarian regime. This economic and social compact was overturned after the debt crisis of 1982, when the government slashed both minimum wages and social spending. Wages have never regained their 1970s value.

Bleynat, Challú and Segal argue that capitalist growth in Mexico has brought about increased inequality while doing little to improve living standards for the majority of the population—and that it takes pro-labour policies and institutions to ensure that the benefits of economic growth are enjoyed widely.

Read a condensed version of their findings in this blog post for the Economic History Society, or read the full journal article in The Economic History Review.

In this story

Ingrid  Bleynat

Senior Lecturer in International Development

Paul  Segal

Reader in Economics of Development