Does real wage converge in China?

Abstract

This study adopts flexible Fourier unit root test proposed by Enders and Lee (Oxf Bull Econ Stat 74(4):574, 2012) to explore real wage convergence in China in the process of market-oriented reform. We find that our approximation has higher power to detect U-shaped and smooth breaks than linear method if the true data generating process of relative real wage is in fact a stationary non-liner process. The empirical results show that property of stationarity of relative real wage varies across different regions. Specifically, stationarity prevails in eastern and western regions, implying the regional development strategies launched there enhance labor migration, commodity trade and thus wage convergence. In contrast, almost all provinces in northeastern and central regions show non-stationarity, indicating the strategies there are less effective in promoting wage convergence. These results have practical policy implications for China’s regional development and income equality.