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Earnings Differences between Chinese and Indian Wage Earners, 1987–2004

  • Bargain, Olivier


    (University of Aix-Marseille II)

  • Bhaumik, Sumon K.


    (University of Sheffield)

  • Chakrabarty, Manisha


    (Indian Institute of Management)

  • Zhao, Zhong


    (Renmin University of China)

This paper is one of the first comprehensive attempts to compare earnings in urban China and India over the recent period. While both economies have grown considerably, we illustrate significant cross-country differences in wage growth since the late 1980s. For this purpose, we make use of comparable datasets, estimate Mincer equations and perform Oaxaca-Blinder decompositions at the mean and quantile decompositions at different points of the wage distribution. The initial wage differential in favour of Indian workers, observed in the middle and upper part of the distribution, partly disappears over time. While the 1980s Indian premium is mainly due to higher returns to education and experience, a combination of price and endowment effects explains why Chinese wages have caught up, especially since the mid-1990s. The price effect is only partly explained by the observed convergence in returns to education; the endowment effect is driven by faster increase in education levels in China and significantly accentuates the reversal of the wage gap in favour of this country for the first half of the wage distribution.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 3284.

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Length: 22 pages
Date of creation: Jan 2008
Date of revision:
Publication status: published in: Review of Income and Wealth, 2009, 55(1), 562-587 [Details & Download]
Handle: RePEc:iza:izadps:dp3284
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  1. Jim Albrecht & Aico van Vuuren & Susan Vroman, 2007. "Counterfactual Distributions with Sample Selection Adjustments: Econometric Theory and an Application to the Netherlands," Working Papers gueconwpa~07-07-06, Georgetown University, Department of Economics.
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  4. David H. Autor & Lawrence F. Katz & Melissa S. Kearney, 2005. "Rising Wage Inequality: The Role of Composition and Prices," Harvard Institute of Economic Research Working Papers 2096, Harvard - Institute of Economic Research.
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  7. Fields, Gary S., 2005. "A guide to multisector labor market models," Social Protection Discussion Papers 32547, The World Bank.
  8. Saha, Bibhas & Sarkar, Subrata, 1999. "Schooling, Informal Experience, and Formal Sector Earnings: A Study of Indian Workers," Review of Development Economics, Wiley Blackwell, vol. 3(2), pages 187-99, June.
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  10. François Bourguignon & Francisco Ferreira & Phillippe Leite, 2008. "Beyond Oaxaca–Blinder: Accounting for differences in household income distributions," Journal of Economic Inequality, Springer, vol. 6(2), pages 117-148, June.
  11. Melly, Blaise, 2005. "Decomposition of differences in distribution using quantile regression," Labour Economics, Elsevier, vol. 12(4), pages 577-590, August.
  12. Barry Bosworth & Susan M. Collins, 2007. "Accounting for Growth: Comparing China and India," NBER Working Papers 12943, National Bureau of Economic Research, Inc.
  13. Geeta Gandhi Kingdon & Jeemol Unni, 2001. "Education and Women's Labour Market Outcomes in India," Education Economics, Taylor & Francis Journals, vol. 9(2), pages 173-195.
  14. Steve Dowrick & Muhammad Akmal, 2005. "Contradictory Trends In Global Income Inequality: A Tale Of Two Biases ," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 51(2), pages 201-229, 06.
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