The Mechanism And Empirical Research Of Employees’ High Wages In Monopolized Industries In China

In recent years, high wages of employees in monopolized industries is widely criticized in China, as a typical reflection of unfair distribution of income among industries. This study intend to investigate the determination of high wages in monopolized industries, since most classical studies of wage determination have not explained the mechanism of employees’ high wages in monopolized industries, while existing labor market segmentation theory could not directly elucidate the mechanism this phenomenon neither.Why do employees in monopoly industries have remarkably high wages? Former studies mostly emphasize that monopolized industries exist non-competitive profits. This thesis points out some queries, and proposes that non-competitive profit is only the precondition of high wages. Based on high profit, the mechanism of endogenous segmentation in internal labor market finally determined the regulation of wage distribution, since only these "insiders" can share the non-competitive profit. In this case, employees’ wage is remarkably high in monopoly industries.This thesis finds out managers in monopolized industry are owner’s agent pursuing profits as well as "inside employee" bonding with labor interests, so they are quite different form managers in private sector. In this case, the relationship between managers and formal employees in monopolized industry are not "technically" labor-capital relationship, but community with benefits. As owner’s agent, they normally hire three categories of labor:people with high human capital (Who has strong competence), people with high social capital (Who are helpful for rent-seeking) and people with low labor costs (Who are helpful for decreasing costs). Meanwhile, as "insiders" of monopolized company, they share non-competitive profit with other insiders but remain their maximum benefits. The mechanism of endogenous labor market segmentation formed by the ’insiders’ (managers, employees) of the monopolized industries, which will be strengthened by the ’potential insiders’ (children, relations) to enter the monopolized industries, and implement wage discrimination on the ’outsiders’ (labor dispatching) for sharing the monopoly profit created by the ’outsiders’. The endogenous labor market segmentation mechanism in monopolized industries and the institutional segmentation of product market are closely combined, which may result in the repeated cycling and self-reinforcement of endogenous segmentation system. In this paper, three hypothesizes will be tested based on the endogenous labor market segmentation mechanism and empirical study.1. Hypothesis 1:Most of the wage differential between monopolized industry and competitive industries has not been explained. Draw on China’s Urban Household Survey data from 1988 to 2009. Using latest FFL decomposition, I show that the unexplained part of the wage differential between monopolized and competitive industries declines, but still dominants at the higher quantile (90th quantile). While most of wage differential has not been explained at the lower quantile (lOthe quantile). In some degree, the entering of labor with high human capital leads to decreasing of unexplainable parts at higher quantile. But endogenous labor market segmentation mechanism maintains the profit for "insiders"2. Hypothesis 2:It is easier for labor with high human capital and social capital to enter the monopolized industry and become ’insiders’ With the CGSS 2006 data, the research investigates the factors affected labor’s the first industry entering using Logit discrete selection model. ① The increase of human capital has a significant positive effect on the odd of entering monopolized company, especially for the new generation (people who were born after 1980). In order to confront the intensive competitiveness in products market and between monopolized companies, the demand of labors with high human capital has been increasing in monopolized industries. ② There is intergenerational stickiness for entering monopolized industries. Compared to the individuals whose fathers work in municipal unit, the workers whose father work in central ministries and commissions have greater access to the monopolized industry, and the proportion between the two is 3.87. Compared to individuals whose fathers are not engaged in management, the odds of access to monopolized industry for the workers whose fathers are leaders namely ’the official offspring’ is as 1.83 times of the odds in competitive industry. In other words, workers whose fathers are ’insiders’ are more likely to become the ’insiders’ of the monopolized industry, which means that monopolized companies intend to hire labors with high social capital for the non-competitive profit via this "rent-seeking behavior"3. Hypothesis 3:In the endogenous labor market segmentation mechanism, wages gaps between the "insiders" and "outsiders" remains when they doing the same work. This research proposes a new approach to ameliorating Brown decomposition with dual index number problem. Based on the new Brown decomposition and data in Hangzhou 2012 survey, I find that nearly 1/4 wage differential of employees with different status comes from the human capital and enterprise characteristic difference, while 3/4 cannot be explained, and it may come from the wage discrimination. There may wages gaps between the ’insiders’ and ’outsiders’ when they doing the same work under endogenous labor market segmentation mechanism, and these insiders can hire outsiders to decease human resource costs and increase non-competitive profits.The policy implication of this paper is that:For short term, in order to resolve the high wage problem in monopolized industry, it should decrease the ratio of outsourcing labor, eliminate the discrimination among personals, realize the employment equality and "equal pay for equal work", replace "insider-outsider" structure and the endogenous segmentation system in monopolized industries. For interim, establish reasonable criteria for employee wages in monopolized industries based on market price of human capital. In the long run, in order to cut down the intergenerational stickiness for entering monopolized industries, the structure of competitive market as well as administration monopoly among industries should be reformed, which is the radical method to decrease the sharing non-competitive profit for insiders.