Wage disparities in China: an analysis by firm types

Abstract

This paper investigates the evolution of interprovincial wage inequality and the causes behind its increase over the last two decades. We focus more specifically on the impact of export-led-market reforms on wages disparities within and between five firm types in China. When measured with the GE(1) index, overall wage inequality among Chinese provinces increased by 50% between 1993 and 2007, most notably during the early 1990s as China accelerated its integration into the world economy. The inequality analysis by firm type suggests that increased international competition has had a large impact on wage inequality among domestic firms but almost none on inequality among foreign firms. The panel analysis conducted in this paper also suggests that factors enhancing labor productivity such as larger capital stock endowment per worker and better infrastructure endowment have a greater impact on wage inequality than an increase in economic integration, particularly for domestic firms located in the interior region.

Keywords:

• China
• wage inequality
• inequality decomposition
• globalization

JEL Classifications:

• I3
• J4
• O5
• R1

Notes

1. Wages and salaries account for approximately 70% of annual income in 2007. Moreover, between 1993 and 2007 the evolution of average provincial wages and labor productivity was paralleled whereby the former increased by 301% and the latter rose by 274%.

2. Due to a lack of data, private Chinese enterprises and self-employed are excluded. The five firm types represented about 93% of the total urban employment in 1993 and approximately 60% in 2007.

3. FFEs are wholly owned by foreign firms of non-Chinese affiliations whereas joint-ventures consist of joint-ownership units and share-holding corporations between Chinese corporations and foreign partners. The assets of SOEs are owned by the state and COEs are enterprises whose assets all belong to the civics collective, including township and village firms. OCCs are owned by overseas Chinese companies from Hong Kong, Macau, and Taiwan.

4. See Figure 2.

5. We use this inequality measure in the remainder of this section.

6. We also ran the analysis with the share of exports in provincial GDP (export), but the coefficient on this variable was insignificant.

7. An alternative proxy for provincial human capital could be average years of schooling; however, the data are not available at the provincial level.

8. We use a depreciation rate of 6%. Biggeri (2003) used a depreciation rate of 10% for 1986–1996 and of 5% for 1997 to 2001.

9. Values are in 1978 yuan.

10. More details on these Wald tests are available from the authors upon request.

11. http://research.stlouisfed.org/fred2/categories/282