Labour market segmentation and urban-rural wage gap: the role of education

This paper examines the determinants of the urban-rural wage gap in China within the framework of segmented labour markets. Using nationally representative data from the China Family Panel Studies (2014–2022), we employ Oaxaca–Blinder decomposition at the mean, and Recentered Influence Function (RIF) regression across the wage distribution. A key contribution of this study is the use of alternative definitions of urban and rural status, based on hukou registration and geographic residence, allowing us to capture both institutional and spatial dimensions of inequality. The results show that mean wage disparities are largely explained by compositional differences, particularly in education and access to formal contracts, reflecting segmentation between distinct rural and urban labour markets. Yet rural workers also experience significant lower returns to education. Quantile decompositions reveal that the wage gap widens at higher percentiles, where unobserved or institutional disadvantages become more pronounced, for both men and women. Overall, the findings demonstrate that China’s urban-rural wage inequality reflects both unequal endowments and structural segmentation. The definition of “urban” and “rural” critically shapes interpretation and policy implications.