Abstract
AbstractHistorical wage and income data provide both normative measures of living standards, and indicators of patterns of economic development. This study shows that, given limited historical data, median incomes are most appropriate for measuring welfare and inequality, while urban unskilled wages can be used to test dualist models of development. We present new estimates of these series for Mexico from 1800 to 2015 and find that both have historically failed to keep up with aggregate growth: GDP per worker is now over eight times higher than in the nineteenth century, while unskilled urban real wages are only 2.2 times higher, and national median incomes only 2.0 times higher. From the perspective of inequality and social welfare, our findings confirm that there is no automatic positive relationship between economic growth and rising living standards for the majority. From the perspective of development, we argue that these findings are explained by a dual economy model incorporating Lewis's assumption of a reserve army of labour, and we explain why the decline in inequality predicted by Kuznets has not occurred.
Highlights
It is a truth universally acknowledged that the consequences for human welfare of different rates of economic growth are staggering.1 Less widely acknowledged, but true, is that human welfare depends primarily on income growth for people, not for countries
We show that when we set w equal to median income, this measure is consistent with the standard DaltonAtkinson normative framework of inequality measurement, because the higher is this ratio, the less GDP growth contributes to social welfare
We can explain the long-run divergence between unskilled wages and per worker GDP that we find in the data for Mexico: L∗M remained below L throughout, and from the nineteenth to the twenty first century, a slow rise in productivity in the traditional sector led to a doubling of unskilled wages AT
Summary
It is a truth universally acknowledged that the consequences for human welfare of different rates of economic growth are staggering. Less widely acknowledged, but true, is that human welfare depends primarily on income growth for people, not for countries. But true, is that human welfare depends primarily on income growth for people, not for countries This distinction matters because changing levels of inequality can lead to substantial divergence between per capita GDP and the living standards of the majority. For this reason estimates of real wages for typical workers are indispensable to the study of historical economic welfare. The goal of this paper is to estimate economic welfare and inequality in Mexico from the nineteenth century to the present using new long-run data series on real wages and incomes, and to use them to explore the process of development. Standards, and which we use to explain why Kuznets’s assumption is not upheld in the case of Mexico
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