Trade Liberalization and the Self-Employed in Mexico

Summary This paper examines the trend in income inequality and poverty among the self-employed workers in Mexico during 1984-2002, a period of rapid trade liberalization. In the decade following the liberalization, inequality and poverty among the self-employed increased; as the economy stabilized inequality started to go down, but poverty kept increasing. To understand the observed changes the inequality and poverty indices are decomposed into within and between group components. Rising returns to skilled labor, regional differences in impact of liberalization and sectoral shifts in employment are important factors in explaining the trends in both inequality and poverty.