Effect Of Intermediate Goods Trade On Wage Gap Of Manufacturing Industry

Since the reform and opening up, China use the advantage of low-cost labor to actively participate in the international division of labor within the product, the intermediate goods trade had become half of China’s foreign trade; China is also increasingly becoming a global manufacturing base. Meanwhile, China’s wage income gap problem has become increasingly prominent, becoming the focus of attention of the whole society, China’s wage gap is reflected in two aspects:the industry wage gap between skilled workers and unskilled workers gradually expand; inter-industry wage income gap is also expanding. The viewpoint that there’s inseparable relationship between foreign trade and the distribution of factor income has become an indisputable fact, and therefore focusing on the relationship between intermediate goods trade which is more and more important and wage income gap has important practical significance.Firstly, the paper organize and review the theory research on International Trade on wage income gap and the empirical research about how intermediate goods trade affect wage income gap. Then, referring The intermediate goods trade-wage gap model of Feenstra and Hanson (1996)’s to analyze the mechanism how intermediate goods trade affect the wage income gap between workers with high skills and other workers, and the impact of intermediate goods imports from developed countries to wage income gap includes integrated production effect, substitution effect and technology spillover effect. Then this paper expands the intermediate goods trade-wage gap model to analyze the role that industry factor feature played in how intermediate goods trade affect wage income gap. Through the calculation and analysis of processing trade and intermediate goods trade under the standard of United Nation’s Broad Economic Categories and the inter-industry income gap and industry income gap between skilled workers and unskilled workers. Then this paper adopting the Skilled Labor demand estimation model to build the empirical model to test the relationship between intermediate goods trade and wage income gap. Then this paper uses the data of China’s manufacturing industry sub-sectors from 1995 to 2011 to do the empirical research. We can come to conclusions:without considering industry characteristics, China’s imports of intermediate inputs widen the relative wage gap between skilled and unskilled workers, while its exports can reduce industry wage gap. Overall, the active role in imports than exports’ negative greater impact on the wage gap between intermediate products to expand trade and technology among unskilled labor; considering the business characteristics, different factor intensity will lead to skilled and unskilled workers Effect of different relative wages, for technology-intensive industries, the intermediate goods imports significantly expand industry wage income gap between skilled and unskilled workers while for labor-intensive and resource-intensive industries, the effect of exports is more significant; both intermediate goods imports and exports will widen inter-industry wage gap. Finally, based on the above mentioned conclusions, based on the results theoretical and practical analysis I proposed on a number of China’s policy to limit and reduce wage differential.