Wage disparities in China: an analysis by firm types

Abstract

This paper investigates the evolution of interprovincial wage inequality and the causes behind its increase over the last two decades. We focus more specifically on the impact of export-led-market reforms on wages disparities within and between five firm types in China. When measured with the GE(1) index, overall wage inequality among Chinese provinces increased by 50% between 1993 and 2007, most notably during the early 1990s as China accelerated its integration into the world economy. The inequality analysis by firm type suggests that increased international competition has had a large impact on wage inequality among domestic firms but almost none on inequality among foreign firms. The panel analysis conducted in this paper also suggests that factors enhancing labor productivity such as larger capital stock endowment per worker and better infrastructure endowment have a greater impact on wage inequality than an increase in economic integration, particularly for domestic firms located in the interior region.