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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.

Suggested Citation

  • Meng, Xin & Shen, Kailing & Xue, Sen, 2013. "Economic reform, education expansion, and earnings inequality for urban males in China, 1988–2009," Journal of Comparative Economics, Elsevier, vol. 41(1), pages 227-244.
  • Handle: RePEc:eee:jcecon:v:41:y:2013:i:1:p:227-244
    DOI: 10.1016/j.jce.2012.04.004
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    References listed on IDEAS

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    Cited by:

    1. Ou, Dongshu & Zhao, Zhong, 2016. "Higher Education Expansion and Labor Market Outcomes for Young College Graduates," IZA Discussion Papers 9643, Institute for the Study of Labor (IZA).
    2. Kanbur, Ravi & Wang, Yue & Zhang, Xiaobo, 2017. "The Great Chinese Inequality Turnaround," IZA Discussion Papers 10635, Institute for the Study of Labor (IZA).
    3. Zhong Zhao & Zhaopeng Qu, 2013. "Wage Inequality of Chinese Rural-Urban Migrants Between 2002 and 2007," Working Papers PMMA 2013-04, PEP-PMMA.
    4. Shuaizhang Feng & Yingyao Hu & Robert Moffitt, 2015. "Long Run Trends in Unemployment and Labor Force Participation in China," NBER Working Papers 21460, National Bureau of Economic Research, Inc.
    5. Lili Kang & Fei Peng, 2017. "Wage flexibility in the Chinese labour market, 1989–2009," Regional Studies, Taylor & Francis Journals, vol. 51(4), pages 616-628, April.
    6. Qu, Zhaopeng & Zhao, Zhong, 2017. "Glass ceiling effect in urban China: Wage inequality of rural-urban migrants during 2002–2007," China Economic Review, Elsevier, vol. 42(C), pages 118-144.
    7. Qu, Zhaopeng & Zhao, Zhong, 2016. "The Glass ceiling effect in urban China: Wage inequality of rural-urban migrants," MERIT Working Papers 069, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    8. Gustafsson, Björn & Li, Shi & Nivorozhkina, Ludmila & Wan, Haiyuan, 2015. "Yuan and Roubles: Comparing wage determination in urban China and Russia at the beginning of the new millennium," China Economic Review, Elsevier, vol. 35(C), pages 248-265.
    9. Richard Herd, 2013. "The evolution of China’s social policies," Economic Change and Restructuring, Springer, vol. 46(1), pages 109-141, March.
    10. Gustafsson, Björn & LI, Shi & Sato, Hiroshi, 2014. "Data for studying earnings, the distribution of household income and poverty in China," China Economic Review, Elsevier, vol. 30(C), pages 419-431.
    11. Guangrong Ma & Jianwei Xu & Shi Li, 2015. "The Income Redistribution Effect Of China'S Personal Income Tax: What The Micro-Data Say," Contemporary Economic Policy, Western Economic Association International, vol. 33(3), pages 488-498, July.
    12. Jeannine Bailliu & Mark Kruger & Argyn Toktamyssov & Wheaton Welbourn, 2016. "How Fast Can China Grow? The Middle Kingdom’s Prospects to 2030," Staff Working Papers 16-15, Bank of Canada.

    More about this item

    Keywords

    Earnings inequality; China;

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • P2 - Economic Systems - - Socialist Systems and Transition Economies
    • P3 - Economic Systems - - Socialist Institutions and Their Transitions

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