Explaining the state-owned enterprise wage premium in China: is it unobserved heterogeneity?

Qian Sun

Economic and Political Studies, 2018, vol. 6, issue 2, 135-157

Abstract: State-owned enterprises (SOEs) in China pay higher wages than private firms. Is it because SOEs pay their workers wage premium or because they employ high-quality workforce? Using the latest methods and data, this paper accounts for the unobserved heterogeneity and estimates the SOE wage premium for the period 1995–2013. It is found that the wage premium has diminished since 1995 and has become insignificant since 2000. The significant wage gap between SOEs and non-SOEs can be explained by the fact that SOEs recruit high-quality workforce in correlation with SOEs’ industrial composition. This paper also evaluates the instruments used in the previous studies and rejects them through validity tests. The evidence suggests that the labour market in China is not segmented by ownership.

Date: 2018
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DOI: 10.1080/20954816.2018.1463477

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