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Economic reform, education expansion, and earnings inequality for urban males in China, 1988–2009

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  • Meng, Xin
  • Shen, Kailing
  • Xue, Sen

Abstract

In the past 20 or so years the average real earnings of Chinese urban male workers have increased by 350%. Accompanying this unprecedented growth is a considerable increase in earnings inequality. Between 1988 and 2009 the variance of log earnings increased from 0.28 to 0.54, a 94% increase. Using a unique set of repeated cross-sectional data this paper examines the causes of this increase in earnings inequality. We find that the major changes occurred in the 1990s when the labor market moved from a centrally-planned system to a market-oriented system. The decomposition exercise conducted in the paper identifies the factor that drives the significant increase in the earnings variance in the 1990s to be an increase in the within-education–experience cell residual variances. Such an increase may be explained mainly by the increase in the price of unobserved skills. When an economy shifts from an administratively determined wage system to a market-oriented one, rewards to both observed and unobserved skills increase. The turn of the century saw a slowing down of the reward to both the observed and unobserved skills, due, to some extent, to the college expansion program that occurred at the end of the 1990s.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Comparative Economics.

Volume (Year): 41 (2013)
Issue (Month): 1 ()
Pages: 227-244

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Handle: RePEc:eee:jcecon:v:41:y:2013:i:1:p:227-244

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Web page: http://www.elsevier.com/locate/inca/622864

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Keywords: Earnings inequality; China;

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  1. Meng, Xin & Gregory, Bob & Wang, Youjuan, 2005. "Poverty, Inequality, and Growth in Urban China, 1986-2000," IZA Discussion Papers 1452, Institute for the Study of Labor (IZA).
  2. Daron Acemoglu, 2000. "Technical Change, Inequality, and the Labor Market," NBER Working Papers 7800, National Bureau of Economic Research, Inc.
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  4. Juhn, Chinhui & Murphy, Kevin M & Pierce, Brooks, 1993. "Wage Inequality and the Rise in Returns to Skill," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 101(3), pages 410-42, June.
  5. Brandt, Loren & Holz, Carsten A, 2006. "Spatial Price Differences in China: Estimates and Implications," Economic Development and Cultural Change, University of Chicago Press, University of Chicago Press, vol. 55(1), pages 43-86, October.
  6. Deng Quheng & Li Shi, 2009. "What Lies behind Rising Earnings Inequality in Urban China? Regression-based Decompositions," Global COE Hi-Stat Discussion Paper Series, Institute of Economic Research, Hitotsubashi University gd08-021, Institute of Economic Research, Hitotsubashi University.
  7. John Gibson & Jikun Huang & Scott Rozelle, 2003. "Improving Estimates of Inequality and Poverty from Urban China's Household Income and Expenditure Survey," Review of Income and Wealth, International Association for Research in Income and Wealth, International Association for Research in Income and Wealth, vol. 49(1), pages 53-68, 03.
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  9. Fang, Cheng & Zhang, Xiaobo & Fan, Shenggen, 2002. "Emergence of urban poverty and inequality in China: evidence from household survey," China Economic Review, Elsevier, Elsevier, vol. 13(4), pages 430-443, December.
  10. Thomas Lemieux, 2002. "Decomposing changes in wage distributions: a unified approach," Canadian Journal of Economics, Canadian Economics Association, Canadian Economics Association, vol. 35(4), pages 646-688, November.
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  12. Xin Meng, 2004. "Economic Restructuring and Income Inequality in Urban China," Review of Income and Wealth, International Association for Research in Income and Wealth, International Association for Research in Income and Wealth, vol. 50(3), pages 357-379, 09.
  13. Hongbin Cai & Yuyu Chen & Li-An Zhou, 2010. "Income and Consumption Inequality in Urban China: 1992-2003," Economic Development and Cultural Change, University of Chicago Press, University of Chicago Press, vol. 58(3), pages 385-413, 04.
  14. Thomas Lemieux, 2006. "Increasing Residual Wage Inequality: Composition Effects, Noisy Data, or Rising Demand for Skill?," American Economic Review, American Economic Association, American Economic Association, vol. 96(3), pages 461-498, June.
  15. Meng,Xin, 2000. "Labour Market Reform in China," Cambridge Books, Cambridge University Press, Cambridge University Press, number 9780521771269.
  16. Zhang, Junsen & Zhao, Yaohui & Park, Albert & Song, Xiaoqing, 2005. "Economic returns to schooling in urban China, 1988 to 2001," Journal of Comparative Economics, Elsevier, Elsevier, vol. 33(4), pages 730-752, December.
  17. Meng, Xin & Gregory, R G, 2002. "The Impact of Interrupted Education on Subsequent Educational Attainment: A Cost of the Chinese Cultural Revolution," Economic Development and Cultural Change, University of Chicago Press, University of Chicago Press, vol. 50(4), pages 935-59, July.
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Cited by:
  1. Gustafsson, Björn Anders & Li, Shi & Sato, Hiroshi, 2014. "Data for Studying Earnings, the Distribution of Household Income and Poverty in China," IZA Discussion Papers 8244, Institute for the Study of Labor (IZA).
  2. Peng, Fei & Kang, Lili, 2013. "Wage Flexibility in Chinese Labor Market 1989-2009," MPRA Paper 46651, University Library of Munich, Germany.
  3. Zhong Zhao & Zhaopeng Qu, 2013. "Wage Inequality of Chinese Rural-Urban Migrants Between 2002 and 2007," Working Papers PMMA, PEP-PMMA 2013-04, PEP-PMMA.
  4. Gustafsson, Björn Anders & Li, Shi & Nivorozhkina, Ludmila & Wan, Haiyuan, 2014. "Yuan and Roubles: Comparing Wage Determination in Urban China and Russia at the Beginning of the New Millennium," IZA Discussion Papers 8241, Institute for the Study of Labor (IZA).

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