GEP 16/02 Globalisation and Inter-Industry Wage Differentials in China

Summary

This paper examines the causal effects of globalisation on inter-industry wage differentials in China. Empirical results show that increases in import (export) shares of final goods reduce (increase) the wage premium significantly. We also find a positive relationship between capital openness and industry wage premium. 

Abstract

This paper explores the relationship between globalisation and inter-industry wage differentials in China by using a two-stage estimation approach. Taking advantage of a rich household survey dataset, this paper estimates the wage premium for each industry in the first stage conditional on individual worker and firm characteristics. Alternative measures of globalisation are considered in the second stage; trade openness and capital openness. The regressions do not reveal a significant relationship between overall trade (import and/or export) openness and wage premia. However, disaggregation of trade into trade in final and intermediate goods is shown to matter. Increases in import (export) shares of final goods reduce (increase) the wage premium significantly, whereas imports or exports of intermediate goods do not explain differences in industry wage premia. This finding is supported by stronger effects for final goods trade in coastal than non-coastal regions. Our results also show a positive relationship between capital openness and industrial wage premium, though this finding is less robust when endogeneity issues are allowed for.
 

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Authors

Chris Milner, Juliane Scheffel and Feicheng Wang 

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