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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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    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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