Microsimulations for Poverty and Inequality in Mexico Using Parameters From a CGE Model

Abstract

In the current article, the author uses microsimulations to analyze poverty and inequality through the accumulative impact on wages of sequential changes in the labor market unemployment rate (U), employment structure (S), wages by economic sector (W1), average labor income (W2), and employment structure by skill level (M). These effects are based on the parameters obtained from a computable general equilibrium (CGE) model, with parameters allowing for simulations from 2003 to 2015. The results show that a yearly increment in the real wages will reduce extreme poverty by half. The changes in the employment structure and wages by economic sector reduce poverty in this model because workers move from the agricultural sector to the service sector, implicitly allowing workers to move from sectors with lower wages to higher wages sectors. Nevertheless, an increase in wage inequality is related to changes in the employment structure by skill level as more skilled workers obtain better wages than unskilled employees.