Earnings mobility during labor market reforms in urban China

Abstract

This paper provides empirical evidence on patterns of earnings mobility for China for the 2000s and before to study how the labor market reform in the late 1990s affects individuals' earnings mobility. We find convergent earnings mobility in the 1990s but clearly divergent earnings mobility in the 2000s, meaning that those with the highest earnings to begin with experienced the largest earnings gains after 2000. Policies would be desirable such as compensating low-skill workers by establishing government-initiated training programs. More generally, welfare policies are necessary to help disadvantaged workers avoid from low-income or poverty traps who suffer from negative shocks in market-oriented reforms.