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Earnings Differences between Chinese and Indian Wage Earners, 1987–2004

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Author Info
Bargain, Olivier () (University College Dublin)
Bhaumik, Sumon K. () (Brunel University)
Chakrabarty, Manisha () (Indian Institute of Management)
Zhao, Zhong () (Renmin University of China)

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Abstract

This paper is one of the first comprehensive attempts to compare earnings in urban China and India over the recent period. While both economies have grown considerably, we illustrate significant cross-country differences in wage growth since the late 1980s. For this purpose, we make use of comparable datasets, estimate Mincer equations and perform Oaxaca-Blinder decompositions at the mean and quantile decompositions at different points of the wage distribution. The initial wage differential in favour of Indian workers, observed in the middle and upper part of the distribution, partly disappears over time. While the 1980s Indian premium is mainly due to higher returns to education and experience, a combination of price and endowment effects explains why Chinese wages have caught up, especially since the mid-1990s. The price effect is only partly explained by the observed convergence in returns to education; the endowment effect is driven by faster increase in education levels in China and significantly accentuates the reversal of the wage gap in favour of this country for the first half of the wage distribution.

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Publisher Info
Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 3284.

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Date of creation: Jan 2008
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Publication status: forthcoming in: Review of Income and Wealth
Handle: RePEc:iza:izadps:dp3284

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Related research
Keywords: returns to education; earnings; India; China; quantile regression; Oaxaca-Blinder decomposition;

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Find related papers by JEL classification:
O15 - Economic Development, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
O53 - Economic Development, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East
P52 - Economic Systems - - Comparative Economic Systems - - - Comparative Studies of Particular Economies

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  1. John Knight & Lina Song, 2003. "Increasing urban wage inequality in China," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 11(4), pages 597-619, December. [Downloadable!] (restricted)
  2. Geeta Gandhi Kingdon, Jeemol Unni, 2001. "Education and Women’s Labour Market Outcomes in India," Education Economics, Taylor and Francis Journals, vol. 9(2), pages 173-195, August. [Downloadable!] (restricted)
  3. David H. Autor & Lawrence F. Katz & Melissa S. Kearney, 2005. "Rising Wage Inequality: The Role of Composition and Prices," Harvard Institute of Economic Research Working Papers 2096, Harvard - Institute of Economic Research. [Downloadable!]
    Other versions:
  4. Byron, Rayond P & Manaloto, Evelyn Q, 1990. "Returns to Education in China," Economic Development and Cultural Change, University of Chicago Press, vol. 38(4), pages 783-96, July.
  5. Saha, Bibhas & Sarkar, Subrata, 1999. "Schooling, Informal Experience, and Formal Sector Earnings: A Study of Indian Workers," Review of Development Economics, Blackwell Publishing, vol. 3(2), pages 187-99, June. [Downloadable!] (restricted)
  6. François Bourguignon & Francisco Ferreira & Phillippe Leite, 2008. "Beyond Oaxaca–Blinder: Accounting for differences in household income distributions," Journal of Economic Inequality, Springer, vol. 6(2), pages 117-148, June. [Downloadable!] (restricted)
  7. Jim Albrecht & Aico van Vuuren & Susan Vroman, 2007. "Counterfactual Distributions with Sample Selection Adjustments: Econometric Theory and an Application to the Netherlands," Working Papers gueconwpa~07-07-06, Georgetown University, Department of Economics. [Downloadable!]
    Other versions:
  8. Steve Dowrick & Muhammad Akmal, 2005. "CONTRADICTORY TRENDS IN GLOBAL INCOME INEQUALITY: A TALE OF TWO BIASES ," Review of Income and Wealth, Blackwell Publishing, vol. 51(2), pages 201-229, 06. [Downloadable!] (restricted)
  9. José Mata & José A. F. Machado, 2005. "Counterfactual decomposition of changes in wage distributions using quantile regression," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 20(4), pages 445-465. [Downloadable!]
  10. James Albrecht & Anders Bjorklund & Susan Vroman, 2003. "Is There a Glass Ceiling in Sweden?," Journal of Labor Economics, University of Chicago Press, vol. 21(1), pages 145-177, January. [Downloadable!]
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  11. Melly, Blaise, 2005. "Decomposition of differences in distribution using quantile regression," Labour Economics, Elsevier, vol. 12(4), pages 577-590, August. [Downloadable!] (restricted)
  12. Gosling, Amanda & Machin, Stephen & Meghir, Costas, 2000. "The Changing Distribution of Male Wages in the U.K," Review of Economic Studies, Blackwell Publishing, vol. 67(4), pages 635-66, October.
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  13. Barry Bosworth & Susan M. Collins, 2007. "Accounting for Growth: Comparing China and India," NBER Working Papers 12943, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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