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Abstract
Are workers in China underpaid? And if so, what may be the reasons and by how much? We address these questions empirically by deploying a heteroscedastic stochastic frontier model, using nationally representative household surveys of the period of 2003–2008. We estimate that labour underpayment is approximately 43.7% in this period of assessment, a significantly higher figure than the estimates for Western economies. Underpayment in this period takes a U-shape relationship. Determinants of underpayment were proposed by seven hypotheses and confirmed by bootstrap method, except age discrimination. Test results show that intergenerational effects are the most salient factor for underpayment. At the same time, we construct an index to measure the wage distortion in the labour market. Our findings indicate a general trend in which underpayment is increasing and differs between workers of different demographic characteristics and across regions. Our study contributes to the field by applying three models to capture the differing levels of influence of a range of factors on underpayment in the Chinese labour market.
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No potential conflict of interest was reported by the authors.
Notes
1. We use 2003 as the starting point because the Chinese government expanded the higher education sector dramatically since 1999 to, in part, ease youth unemployment pressure. 2003 was the first year when the annual number of university graduates rose significantly. For example, the number of university graduates had grown from 2.12 million in 2013 to 4.95 million in 2007, 6.31 million in 2010, 6.99 million in 2013 and 7.27 million in 2014 (China Education Online 2014, http://www.eol.cn/html/c/2014xbys/index.shtml). 2008 data was the most up to date that was available at the time of this study. In addition, having 2008 as the cut-off point is appropriate because the Citation2008 Global Financial Crisis has led to the relative decline of China's economy compared with previous years. This impact was further exacerbated by the impact of the enactment of the Labour Contract Law which has affected the operation of the labour market and workers’ deployment in different ways (c.f. Cooke Citation2012).
2. Due to the omission of many key variables in the CGSS 2006, we dropped 2006 year data in our mixed estimation and demonstrated the results in yearly estimation.
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Jia Li
Jia Li (PhD, Capital University of Economics and Business) is lecturer of the Finance Institute, Hebei Normal University of Science and Technology, China. Her research interests are in the area of gender studies, labour market and labour wages. Her recent publications featured in Statistical Research (2015), China Economic Issues (2014) and Journal of Population (2014). Her current research projects include the calculation model of minimum wage in China and pension adjustment mechanism in China.
Fang Lee Cooke
Fang Lee Cooke (PhD, University of Manchester, UK) is a Professor of Human Resource Management (HRM) and Asia Studies at Monash Business School, Monash University. Previously, she was a full professor (since 2005) at Manchester Business School, University of Manchester, UK. Her research interests are in the area of employment relations, gender studies, diversity management, strategic HRM, knowledge management and innovation, outsourcing, Chinese outward FDI and employment of Chinese migrants. She is the author of HRM, Work and Employment in China (2005), Competition, Strategy and Management in China (2008), and Human Resource Management in China: New Trends and Practices (2012). She is a co-author (with Nankervis, Chatterjee and Warner) of New Horizons of Human Resource Management: Models from China and India (2013). Her current research projects include Chinese firms in Africa and their employment practices and labour relations; employee resilience, HRM practices and engagement in the finance sector in the Asian region; the evolution of industrial relations and implications for foreign firms in South Asia; organizational practices and management models in the care sector; and HRM in the care sector, including healthcare, aged care and disability care.
Junlin Mu
Junlin Mu (PhD, Chinese Academy of Social Science) is an associate professor in School of Labor Economics, Capital University of Economics and Business. His research interests are in the area of labour market, labour econometrics and gender wage differences. His recent works featured in Rural Economy of China (2010), and Technology economics and Management Research (2012) and Population and Economics (2012). His current research projects include study on the employment effect of monetary policy in China and study on the characteristics of labour supply.
Jue Wang
Jue Wang (PhD, Birkbeck College, University of London) is an associate professor in School of International Business, Southwestern University of Finance and Economics, China. His research interests are in the area of foreign direct investment, international business strategy, international human resource management, and Chinese economy. His recent works have been published in World Development (2014), Journal of World Business (2014), Management International Review (2014), Asian Pacific Journal of Human Resource (2014), International Journal of Human Resource Management (2013), International Business Review (2013, 2009). His current research projects include the selection of ownership entry mode for China's OFDI and its influence on the performance of overseas subsidiaries (2013); and determinants of multinational subsidiary knowledge flow in China (2011).