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

45 Pages Posted: 10 May 2010

See all articles by Xin Meng

Xin Meng

Australian National University; IZA Institute of Labor Economics

Kailing Shen

Xiamen University; IZA Institute of Labor Economics

Sen Xue

Jinan University

Abstract

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.

Keywords: earnings inequality, China

JEL Classification: J31, P2, P3

Suggested Citation

Meng, Xin and Shen, Kailing and Xue, Sen, Economic Reform, Education Expansion, and Earnings Inequality for Urban Males in China, 1988-2007. IZA Discussion Paper No. 4919, Available at SSRN: https://ssrn.com/abstract=1603368

Xin Meng (Contact Author)

Australian National University ( email )

Research School of Economics
College of Business and Economics
Canberra ACT 0200
Australia
+61 26249 3102 (Phone)

IZA Institute of Labor Economics

Schaumburg-Lippe-Str. 7 / 9
Bonn, D-53072
Germany

Kailing Shen

Xiamen University ( email )

Xiamen, Fujian 361005
China

HOME PAGE: http://www.wise.xmu.edu.cn/faculty/shen

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Sen Xue

Jinan University ( email )

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