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Economic Reform, Education Expansion, and Earnings Inequality for Urban Males in China, 1988-2007

  • Meng, Xin

    ()

    (Australian National University)

  • Shen, Kailing

    ()

    (Australian National University)

  • Xue, Sen

    ()

    (Xiamen University)

In the past 20 years the average real earnings of Chinese urban male workers have increased by 350 per cent. Accompanying this unprecedented growth is a considerable increase in earnings inequality. Between 1988 and 2007 the variance of log earnings increased from 0.27 to 0.48, a 78 per cent 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 labour 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 largely to the college expansion program that occurred at the end of the 1990s.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 4919.

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Length: 45 pages
Date of creation: Apr 2010
Date of revision:
Publication status: published in: Journal of Comparative Economics, 2013, 41 (1), 227–244
Handle: RePEc:iza:izadps:dp4919
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  1. Thomas Lemieux, 2002. "Decomposing changes in wage distributions: a unified approach," Canadian Journal of Economics, Canadian Economics Association, vol. 35(4), pages 646-688, November.
  2. Daron Acemoglu, 2000. "Technical Change, Inequality, and the Labor Market," NBER Working Papers 7800, National Bureau of Economic Research, Inc.
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  6. Meng, Xin & Gregory, Robert & Wan, Guanghua, 2006. "China Urban Poverty and its Contributing Factors, 1986-2000," Working Paper Series RP2006/133, World Institute for Development Economic Research (UNU-WIDER).
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  13. Juhn, Chinhui & Murphy, Kevin M & Pierce, Brooks, 1993. "Wage Inequality and the Rise in Returns to Skill," Journal of Political Economy, University of Chicago Press, vol. 101(3), pages 410-42, June.
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  15. Gong, Cathy Honge & Meng, Xin, 2008. "Regional Price Differences in Urban China 1986-2001: Estimation and Implication," IZA Discussion Papers 3621, Institute for the Study of Labor (IZA).
  16. Dwayne Benjamin & Loren Brandt & John Giles & Sangui Wang, 2005. "Income Inequality During China's Economic Transition," Working Papers tecipa-238, University of Toronto, Department of Economics.
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