Trade and Occupational Employment in Mexico since NAFTA

We analyze the effects of trade liberalization on Mexican employment at an occupational level for the period from 1992 to 2009, ranking occupations by skill level. We find that the reduction in trade costs associated with Mexico's entry to NAFTA is related to larger employment expansions in low-skill occupations. This evidence runs counter to a story of skilled-biased technological change in Mexico, and in favour of a heterogeneous-firm model of trade in tasks where the offshoring cost of an occupation is positively related to its skill level. After NAFTA, labour demand for unskilled workers has increased and labour demand for skilled workers has been stagnant, even though supply of skilled workers has increased in the last 20 years. We provide intuitive evidence to identify a number of relevant bottlenecks in the Mexican economy that may be associated with these developments.