Regional Differences in Human Capital and Occupational Choice: Evidence from Mexico

This study attempts to explain productivity differences across regions in Mexico using individual-level census data. We argue that differences in education quality, school attendance, and occupational choices influence aggregate productivity across regions. To quantify these effects, we build a general equilibrium model with labor market frictions, education quality, and school enrollment. Our model predicts that increasing education quality and school enrollment rates raises the productivity of the Mexican regions, on average, by 7% and 17%, respectively. The regions with the occupational distribution skewed toward higher-skilled occupations are, on average, 3–4% more productive than the regions with lower levels of productivity. We also consider the effect of gender barriers on productivity as women encounter difficulties in having access to a wider variety of occupational choices than men. Mexico also has a significant proportion of women working in the home sector. Using a counterfactual analysis where women in the home sector are replaced by men, we find that reducing barriers for women to work in the broader labor market would increase the aggregate regional productivity by 9–12%. We also find that migration has a minimal effect on regional productivity.