Behavior analysis of real wages in Mexico (1995-2018)

Abstract

Objective: To determine through econometric analysis which variables —inflation, real exchange rate, unemployment, and consumption— have a major impact on workers' wages and, therefore, on production. Design/Methodology/Approach: We developed a multiple linear regression model for the behavior of macroeconomic variables in Mexico from 1995 to 2018, using the ordinary least squares method (OLS) and the Gretl statistical package. Results: The analysis of the model showed that inflation, exchange rate, and unemployment are highly significant, unlike consumption. For the model of real wages in Mexico, we obtained a 0.87 coefficient of determination —i.e., the variables included in the model account for 87% of the wages’ behavior. The relation of consumption, unemployment, and inflation to wages was as expected. Regarding the exchange rate, the result was the opposite of the expectations. The wage-unemployment elasticity had the greatest impact. Study Limitations/Implications: The database used was the main limitation because it relies on official sources, which lack data and show inconsistencies. Findings/Conclusions: The study helped to determine whether or not the proposed variables affected the national economic growth. Mexico is not a first-world country than can offer high salaries; therefore, the Mexican economy must continue to grow, before it reaches a higher per capita income. In this regard, it is essential to consider the extent to which the new government’s proposals will be able to face the reality: very few and very low-quality jobs are created, despite what the official figures say.