Converging or diverging: How implementing a fair competition review system affects wage gap

The introduction of China’s Fair Competition Review System represents a major shift in its approach to market competition and administrative monopoly mitigation. This study contributes to academic discussion by exploring the relationship between the Fair Competition Review System and the reduction of wage gap within firms. Based on data from Chinese listed firms, this study employs a difference-in-differences approach to demonstrate the pivotal role of competition policy implementation in narrowing the wage gap between executive-level and rank-and-file employees. This finding retains its validity across a comprehensive array of robustness assessments. Subsequent analysis further identifies that the efficacy of the policy in compressing wage gap exhibits greater significance within the contexts of traditional businesses, small-scale enterprises, and firms subjected to fewer financing restrictions. Mechanism analysis indicates that the fair competition review system primarily lowers the compensation for both executives and ordinary employees via the income effect and the substitution effect. Further analysis reveals that the decrease in executive compensation surpasses that in ordinary employee compensation, consequently reducing the disparity in pay levels. These findings emphasize the pivotal role of competition policies in achieving not just economic growth but also in striving for income equality, suggesting their considerable influence in fostering a fair and just society.