Abstract
This paper examines the effect of the public sector and state-owned enterprises (SOEs) on wage inequality in urban China using China Household Income Project data. It applies quantile regression analysis, the Machado and Mata decomposition to investigate how urban wage inequality was affected by the changes in wage structure and employment shares of the public sector and SOEs. We find that since the radical state sector reforms designed to reduce overstaffing and improve efficiency in the late 1990s, urban wage gaps were narrowed due to the reduction in the employment share of the state sector; the wage premium of the state sector in comparison with the non-state sector increased significantly; and changes in the wage structure of the labour market caused the rise in urban wage inequality.
Highlights
The Chinese economy has been transformed immensely, it is still dominated by the state bias towards the public service sector and state-owned enterprises
Having presented the wage gaps between the state sector and non-state sector and its evolution during the period from 1988 to 2007, we provide findings revealing how urban wage inequality was affected by the change in the wage structure and employment share of the state sector
This paper examined the effect of change in the state sector’s wage structure and employment share on urban wage inequality by employing China Household Income Project (CHIP) urban household survey data from 1988, 1995, 2002 and 2007
Summary
The Chinese economy has been transformed immensely, it is still dominated by the state bias towards the public service sector and state-owned enterprises. The bias is indicated by the share of state sector employment and related wage setting. There has been widespread concern that industrial wage gaps, between the state and non-state sectors, have been increasing in China. Industrial wage differentials could exist even in a perfectly competitive market economy. This may be due to the fact that wages are normally higher in high-tech and capital intensive industries than that in low-tech or labour intensive industries ceteris paribus. If the wage gaps are substantial under this circumstance, there is no need to directly restrict the pay in the highly paid industries instead, the government could tax high salaries and set a minimum wage. The state-bias has been reinforced with a launch of a series of economic policies in China starting from mid 1990s and being reinforced since 2002
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