High temperature, bargaining power and within-firm wage inequality: Evidence from China

Abstract

Climate change poses a significant challenge to the sustainable development of modern society, while its influence on income inequality remains understudied. This study examines how high temperature affects within-firm wage inequality using Chinese listed companies from 2006 to 2020. Results suggest that high temperature significantly increases managerial compensation while reducing employee wages, thereby exacerbating within-firm wage inequality. The main driver is the disparity in bargaining power between management and employees. China's 2012 heat subsidy policy has mitigated this inequality. Heterogeneity analysis reveals that in environments where employees wield more bargaining power, such as state-owned enterprises, sectors employing highly skilled workers, and regions with stronger unions, the negative impact is less pronounced. Conversely, in developed managerial markets, regulated industries, and large enterprises, where management holds stronger bargaining power, this impact is notably significant. These findings offer crucial insights for policymakers and stakeholders in addressing climate risks and regulating income distribution.