How Does Foreign Direct Investment Affect Wage Inequity Of China

With the deepening openness and the rapid development of economy, China has experienced 30 years of economic reform and opening-up. We transform our focus from the speed of development of economy to the quality of development to achieve sound and fast development becomes the optimal model of economic development. We noticed that the wage inequity has been enlarged with economic development. The inequity included wage between regions, wage between industries, and wage between skilled and unskilled workers. Foreign capital became an important strategy of economic development In China’s opening-up process. Foreign Direct Investment (FDI) contributes to capital, techniques, and management skills, and so is considered as an important source of direct input of capital and indirect knowledge spillover. It has played an important role in China’s economic development. The influence of FDI to China’s wage inequity is the focus of this research.This paper studies the system about the home and abroad academic research, integrating the views about how FDI influence wage inequity and making out the inner mechanism between FDI and the wage inequity in theory. Labor market, technology spillovers and wage spillovers as channels of how foreign direct investment influence wage inequity. In this paper combined economic conditions of China analysis of FDI and wage inequity’s inner mechanism. According to the theory that in developing countries, there is a nonlinear relationship between FDI and wage inequity, we respectively used a panel date in the year of 1995-2008 in regional and a panel date in the year of 1999-2008 about nine industries to analysis of mechanism in empirical research level. Results turn out that, in our country the nonlinear influence has existed between FDI and wage inequity.This study found that mechanism between FDI and wage inequity has closely related by the level of economic development. In the eastern, central and western contrastive analysis found that in three areas the influence of FDI to wages pattern are not identical. In the eastern and central region, the nonlinear influence has existed between FDI and wage inequity, but the trend is opposite. In the western region the nonlinear influence is not existed. In sector level we found that the domestic investment has enlarged the wage inequity. According to its sources and uses, fixed investment response national policies, the entrepreneur’s expectations and industry development prospects, therefore, it’s an important factor influence wage inequity. At the same time, labor quality and labor market segmentation also are important factors influence wage inequity. Finally, on the basis of the analysis, the article puts forward several suggestions.