CIIDWPNo.45-MaXinXin-Labor Market Segmentation by Industries and its Impact on Wage Gaps

Ma, Xinxin; Li, Shi
Published: 2016/5/26 14:05:41    Updated time: 2016/5/26 14:42:12

Abstract: This paper explores industrial segregation and its impact on the wage gaps between rural-to-urban migrants and local urban residents in China. Using the Chinese Household Income Project (CHIP) 2002 and 2013 surveys, we analyzed the probabilities of entry to various industries for both migrant and local urban resident groups; using the model of Brown et al . (1980), we then undertook a decomposition analysis of the wage gaps. Several major conclusions emerge. First, although inter-industry differentials and intra-industry differentials both affect the wage gap between migrants and local urban residents, the effect of intra-industrial differentials is greater in both 2002 and 2013. Second, in considering the effect of intra-industry differentials, while the influence of explained differentials is greater than that of unexplained differentials in both 2002 and 2013, the influence of the unexplained component of the intra-industrial differentials rises steeply from 19.4% (2002) to 68.0% (2013). The results show that when other factors are held constant, the problem of discrimination against migrants in a given industry is becoming more serious. In addition, the influence of the explained component of the intra-industry differentials rises from 61.2% (2002) to 77.7% (2013).
Keywords: industrial segregation, wage gaps, migrants, local urban residents, urban China

 Authors:

        Ma, Xinxin--------Institute of Economic Research, Hitotsubashi University, Japan

        Li, Shi--------Beijing Normal University, China

 

1 Introduction

In China, along with the transitional economy, two phenomena haveattracted attention. First, the Chinese urban market is segregated intomigrant and local urban resident groups; and there exists discrimination against migrants in employment and wages (Meng & Zhang, 2001; Wang,2003, 2005; Zhang, 2003; Song & Appleton, 2006, Ma, 2011). Second,since the 1990s, the wage gap between the monopoly industries (e.g.,finance, electricity, gas, and water supply, education, governmentalorganizations industries) and the competitive industries (e.g.,manufacturing, construction, retail and wholesale industries) has widened(Cai, 1996；Luo &Li, 2007 ；Demurger et al. 2007; Jin & Cui, 2008；Ma,2012,2014). Moreover, Roberts (2001), Song & Appleton (2006) pointedout that most migrants are concentrated in the competitive industries,whereas local urban residents work in the monopoly industries. This maybe because most migrants rarely have a chance to enter the monopolyindustries. Thus, along with the growth of the industrial wage gap, thesuggestion is that industrial segregation might widen the wage gapbetween migrants and local urban residents.

Does industrial segregation affect the wage gap between migrants andlocal urban residents? Based on the analysis in Brown et al. (1980)1, the effects of industry segregation on the wage gap between migrants andlocal urban residents can be divided into two parts as follows. First, thechances (or possibilities) of entry to various industries may differ betweenthese groups. If such a pattern exists, it can cause industry distributiondifferentials between these two groups. For example, if the proportion ofthose working in monopoly industries—in which the average wage levelsare higher—is greater for local urban residents than for migrants , or ifmost migrants work in competitive industries in which the average wagelevels are relatively lower, the wage gap thus created is designated as an inter-industry differential. Second, while other factors such as humancapital are held constant, if different wage levels between migrants andlocal urban residents in the same industry sector cause a wage gapbetween these two groups, this is designated as an intra-industrydifferential. To reveal which factors determine the wage gap between thesetwo groups, it is necessary to analyze the effects of both inter-industry andintra-industry differentials on this gap.

In previous studies on the wage gap between migrants and localurban residents, Wang (2003), Xie & Yao (2006), Ma (2011) utilized theOaxaca-Blinder model to undertake the decomposition analysis and foundthat the influence of discrimination on the wage gap is greater than that ofhuman capital differentials. Meng (1998), Meng & Zhang (2001) utilized the Brown et al. model (1981) to analyze occupational segregationand the wage gap between migrants and local urban residents and foundthat occupational discrimination is the main factor underlying the wagegap. However, these studies did not focus on industrial segregation and itis not clearly how intra-industry differentials and inter-industrydifferentials affect the wage gap between these two groups. Zhang (2003)pointed out that discrimination exists against migrants when they enterinto industry. However, he did not utilize decomposition methods toestimate how industrial segregation affected the wage gap.

Using 2002 and 2013 Chinese Household Income Project (CHIP)survey data, this study investigates three questions as follows. First, howdo unexplained differentials (i.e., discrimination) and explaineddifferentials (e.g., differentials based on individual characteristics) affectthe wage gap between migrants and local urban residents? Second, how dointra-industry differentials and inter-industry differentials affect the wagegap? Third, how is the wage gap affected by discrimination that ariseswhen a worker wants to enter an industry, as well as by discrimination thatexists against those already working within the same industry? To our knowledge, this is the first study to utilize decomposition methods for theestimations required to answer the second and third questions; theseresults are new discoveries.

This paper is structured as follows. Part II describes the analysismethods, including introduction to data and models. Part III are thedescription analysis results, and Part V states the quantitative analysisresults to answer the first, second, third questions. Part VI presents themain conclusions.