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Market expansion, state intervention and wage differentials between economic sectors in urban China: A multilevel analysis


  • Ye Liu

    (The Chinese University of Hong Kong, Hong Kong; University of St Andrews, UK)

  • Wei Xu

    (University of Lethbridge, Canada; The Center for Modern Chinese Studies, East China Normal Universality, China)

  • Jianfa Shen

    (The Chinese University of Hong Kong, Hong Kong)

  • Guixin Wang

    (Fudan University, China)


The rising earnings inequality in China has sparked a heated debate on the socioeconomic outcomes of market transformation. While a large body of literature has focussed on the temporal trend of wage inequality during the reform period, much less attention has been devoted to the structural causes of regional variations in sectoral wage differentials. Using a micro-data sample from the 2005 one percent population sample survey and multilevel methods, this article examines the geographic variability of wage differentials between economic sectors in urban China, with a particular focus on the combination effects of market expansion and state intervention. The results indicate that sectoral wage differentials vary substantially across regions, and that market expansion interacts with state intervention to reconfigure earnings outcomes. Specifically, prefectures located in the interior region tend to exhibit a large wage premium for the state sectors, while prefectures located in the coastal region tend to display a wage advantage of the foreign-invested sector. The wage gap between the state and non-state sectors is smaller in areas with diversified ownership; openness to foreign investment increases the relative wages of foreign-invested-sector employees; stringent government regulation of industries increases the wage gap between the state monopoly sector and the non-monopoly sector; and strong redistributive power increases the wage premium for the public service sector over other sectors. Our findings suggest the necessity to take into account contextually constituted and locally specific wage-setting mechanisms when studying China’s wage inequality.

Suggested Citation

  • Ye Liu & Wei Xu & Jianfa Shen & Guixin Wang, 2017. "Market expansion, state intervention and wage differentials between economic sectors in urban China: A multilevel analysis," Urban Studies, Urban Studies Journal Limited, vol. 54(11), pages 2631-2651, August.
  • Handle: RePEc:sae:urbstu:v:54:y:2017:i:11:p:2631-2651

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