Spatial disparity of skill premium in China: The role of financial intermediation development

Tat-kei Lai and Luhang Wang

China Economic Review, 2024, vol. 85, issue C

Abstract: In China, the relative wages of high-skilled and low-skilled workers display huge variation across different regions. We examine whether financial intermediation development (FID) can explain such variation. Conceptually, better-developed financial intermediation helps financially-constrained firms raise new capital, which is usually skill-biased, resulting in an increased demand for skilled labor and skill premium. Using a cross-section of workers from the 1% Population Survey of 2005, we find consistent evidence; besides, the relationship is stronger among workers in industries with higher capital-skill complementarity and in non-state-owned enterprises. Overall, our results suggest that the financial market plays a role in explaining skill premium in China.

Keywords: Financial intermediation; Misallocation; Skill premium; China (search for similar items in EconPapers)
JEL-codes: J24 J31 O11 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:chieco:v:85:y:2024:i:c:s1043951x24000622

DOI: 10.1016/j.chieco.2024.102173

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