Abstract
Recent literature has cited trade liberalisation as a major cause for the growth of wage inequality in developing countries. This study uses primary data from 670 Chinese manufacturing firms, together with the newly introduced regression-based inequality decomposition method, to investigate the impact of industry openness on wage inequality. The empirical analysis shows that industry openness leads to a positive industry wage premium, and thereby contributes to the inter-industry wage inequality. However, the decomposition results suggest that the contribution industry openness to the wage inequality, although positive, is relatively small at 4.69%. The major contributor to the wage inequality is firms' difference in human capital, which accounted for 14.3%.
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