Wage Inequality, Trade Liberalization And The Chinese Province

With China's further openness , the real wage rate has dramatically increased in rececent year, but urban wage disparity has also been widened, which can be categorized into market and non-market factors. Using a provincial and three-digit panel data of urban wage from from the China Labor Statistics Yearbook between 1999 and 2005, this paper measures the trend of urban wage and analyzes the impacts of trade liberalization on intra-provincial wage inequality. Based on the model developed by Acemoglu(1998,2002)and Avalos and Savvides(2006),this paper introduces some explanatory variables including trade dependency, relative supply of labor force, FDI, investment ratio and education, examines the marginal effects of changes in elative supply of labor force, trade liberalization and technological progress on urban wage inequality.The major findings of this paper include: First, the urban wage inequality in China has been widened over time. Industrial wage differentials show a similar trend. Regional wage disparity mainly comes from intra-provincial wage gap, while the inter-provincial wage gap remains. Second, the increase of China's relative supply of labor force will decrease the wage inequality. A high substitution rate between skilled workers and unskilled workers is also found. Third, The openness represented by total trade in GDP deepens the wage inequality. Since China has raped the technology spill-over and technology transfer through foreign trades, the nature of"skilled biased technological change"has widened the wage gap between skilled workers and unskilled workers. Fourth, other indicators including FDI in GDP, R & D Intensity do not have significant impacts on the wage inequality, while demestic investment seems to woren urban wage gap. Therefore, Increase in education and human capital investment to update the skills of unskilled workers is one of important policy measures to narrow urban wage inequality.