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July 2000 - After Mexico's financial crisis in 1994, the distribution of income and labor earnings improved. But financial income and rising labor earnings in higher-income brackets are growing sources of inequality in Mexico. After Mexico's financial crisis in 1994, the distribution of income and labor earnings improved. Did inequality increase during the recession, as one would expect, since the rich have more ways to protect their assets than the poor do? After all, labor is poor people's only asset (the labor-hoarding hypothesis). In principle, one could argue that the richest deciles experienced severe capital losses because of the crisis in 1994-96, and were hurt proportionately more than the poor were. But the facts don't support this hypothesis. As a share of total income, both monetary income (other than wages and salaries) and financial income increased during that period, especially in urban areas. Financial income is a growing source of inequality in Mexico. Mexico's economy had a strong performance in 1997. The aggregate growth rate was about 7 percent, real investment grew 24 percent and exports 17 percent, industrial production increased 9.7 percent, and growth in civil construction (which makes intensive use of less skilled labor) was close to 11 percent. Given those figures, it is not surprising that the distribution of income and labor earnings improved, but the magnitude and quickness of the recovery prompted a close inspection of the mechanisms responsible for it. Lopez-Acevedo and Salinas analyze the decline in income inequality after the crisis, examine income sources that affect the level of inequality, and investigate the forces that drive inequality in Mexico. They find that in 1997 the crisis had hurt the income share of the top decile of the population mainly by reducing its share of labor earnings. Especially affected were highly skilled workers in financial services and nontradables. Results from 1998 suggest that the labor earnings of those workers recovered and in fact increased. Indeed, labor earnings are a growing source of income inequality. This paper-a product of the Economic Policy Sector Unit and Mexico Country Office, Latin America and the Caribbean Region-is part of the Bank's study of earnings inequality after Mexico's economic and educational reforms. The authors may be contacted at gacevedo@worldbank.org or asalinas@worldbank.org.

Bank --- Calculations --- Contribution --- Current Account --- Current Income --- Earnings --- Economic Theory and Research --- Education --- Emerging Markets --- Equity --- Finance and Financial Sector Development --- Financial Crisis --- Financial Literacy --- Household Income --- Income --- Income Groups --- Income Sources --- Inequality --- Information --- Investment --- Labor Markets --- Labor Policies --- Low-Income --- Macroeconomics and Economic Growth --- Population --- Poverty Impact Evaluation --- Poverty Reduction --- Private Sector Development --- Rural Development --- Rural Poverty Reduction --- Salaries --- Services and Transfers to Poor --- Severe Financial Crisis --- Social Protections and Labor --- Wages

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July 2000 - The best way to increase school enrollment in Mexico is to successfully target public spending on education to poor households. Currently, nonpoor households in urban areas get much of the subsidy benefit from the government provision of education services. Standard benefit-incidence analysis assumes that the subsidy and quality of education services are the same for all income deciles. This strong assumption tends to minimize the distributional inequity at various education levels. Using a new approach emphasizing marginal willingness to pay for education, Lopez-Acevedo and Salinas analyze the impact of public spending on the education spending behavior of the average household. They address several questions: What would an average household with a given set of characteristics be willing to spend on an individual child with given traits if subsidized public education facilities were unavailable? What would the household have saved by sending the child to public school rather than private school? How great are these savings for various income groups? What are the determinants of enrollment by income group and by location? How do individuals' education expenditures affect enrollment patterns? Among their findings: The nonpoor households in urban areas get much of the subsidy, or savings, from government provision of education services; The wealthy value private education more than the poor do; Differences in school quality are greater at the primary level. In other words, wealthy households get the lion's share of benefits from public spending on education. Household school enrollment and transition to the next level of schooling depend heavily on the cost of schooling, how far the head of the household went in school, the per capita household income, and the housing facilities or services. But the government's effort also affects the probability of enrollment and transition. The probability of enrollment is much higher for the 40 percent of higher-income households in urban areas than it is for the 40 percent of lower-income households in rural areas. The best way to increase school enrollment is to successfully target public spending on education to poor households. This paper-a product of the Economic Policy Sector Unit and the Mexico Country Office, Latin America and the Caribbean Region-is part of a strategy to reduce poverty and inequality in Mexico. The study was part of the research project Earnings Inequality after Mexico's Economic Reforms. The authors may be contacted at gacevedo@worldbank.org or asalinas@worldbank.org.

Education --- Education Facilities --- Education for All --- Educational Expenditure --- Educational Expenditures --- Educational Levels --- Educational Policy --- Educational Reforms --- Educational Services --- Effective Schools and Teachers --- Finance and Financial Sector Development --- Financial Literacy --- Gender --- Gender and Education --- Health, Nutrition and Population --- Population Policies --- Poverty Reduction --- Primary Education --- Primary Level --- Private Schools --- Public Schools --- Public Sector Management and Reform --- Rural Development --- Rural Poverty Reduction --- School --- School Attendance --- School Enrollment --- School Fees --- School Level --- School Quality --- Schooling --- Secondary Education --- Secondary School --- Tertiary Education --- Textbooks