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Who Gets Money First? Monetary Expansion, Ownership Structure and Wage Inequality in China

Author

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  • Peiwen Bai
  • Wenli Cheng

Abstract

With the help of a simple model this paper formulates a hypothesis that a monetary expansion in the Chinese context of a segmented labor market has the effect of widening the wage gap between state and non-state workers. We argue that the reason for the increase in wage differential is that SOEs are in a privileged position to receive new money first which means the wage rate of SOE workers are raised first. It is only after the new money reaches the non-state sector via spending, does the wage rate of non-state workers rise with a delay and probably to a lesser extent. Our empirical analysis based on 10 sectors in China over the period 1990 to 2011 supports our hypothesis.

Suggested Citation

  • Peiwen Bai & Wenli Cheng, 2014. "Who Gets Money First? Monetary Expansion, Ownership Structure and Wage Inequality in China," Monash Economics Working Papers 01-14, Monash University, Department of Economics.
    • Handle: RePEc:mos:moswps:2014-01
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    File URL: http://www.buseco.monash.edu.au/eco/research/papers/2014/0114moneybaicheng.pdf
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    Cited by:

    1. Wenli Cheng & Yongzheng Wu, 2017. "Understanding the Kuznets Process—An Empirical Investigation of Income Inequality in China: 1978–2011," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 134(2), pages 631-650, November.

    More about this item

    Keywords

    monetary expansion; labor market segmentation; wage differential between state and non-state workers in China;
    All these keywords.

    JEL classification:

    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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