The Evolution Of The Skill Premium In China And The Causes

Income distribution has always been an important issue related to the stability of a country and its economic development.Besides,we all know that the wage income is the main income of the normal laborers.A reasonable wage distribution system will be helpful to stimulate the enthusiasm of the labor and also be helpful to the stability of the employeeemployer relationship,as well as the long-term development of the economic.Therefore,it has great significance to do research on the wage income distribution.However,seldom scholars pay attention to the wage gap between workers with different skills in China.Numerous existed papers in regard to the issues of China wage distribution are mainly about the wage gap between urban and rural,coastal and inland as well as different corporate ownership.Foreign scholars defined the wage gap between different skill groups as skill premium.It was in the 1990 s that the economists began to pay attention to the skill premium.However,most of the researches are all about the skill premium in western countries.The domestic researches on this issue are not rich.This paper analyses the causes of the skill premium in China in the logical framework of Demand-Supply-Institute.This paper drew the following conclusions through theoretical analysis and empirical test.Firstly,the improvement of average education level and the skill premium coexist in China,especially after 1999.The increased supply of college laborers does not reduce the skill premium.The migration of rural labors pumped more laborers to the non-agriculture industry and urban labor market.The increase of the supply of skilled and non-skilled labors along with the increase of the skill premium is now a special phenomenon in China.We can find that the changes of the skill premium differ from other countries through the comparative analysis with other countries.Secondly,skill-biased technical change exists from the aspects of the overall economic level.However,we can find an interesting phenomenon if we divide the overall economic into skilled labor intensive sector and non-skilled labor intensive sector.That is the technical change in the skilled labor intensive sector increases the demand of skilled labors in this sector,but the situation is different in the non-skilled labor intensive sector.Therefore,we can conclude that only the skilled labor industry exist the skill-biased technical change.This may be one of the reason that why the skill premium in China does not fluctuate significantly after the migration of the rural labors.Thirdly,when the skill-biased technical change occurs in a closed economy,the relative supply of skilled labors does not change in the short term,therefore,the relative supply of the skilled labors will increase.The skill premium will increase due to the perfect competition of the labor market.But the situation will be different in the long term.The progress of the skillbiased technical change will be faster than the increase of the supply of skilled labors.This will increase the skill premium though the supply of skilled laborers increases with the development of the economic.That is,if we do not take other factors into consideration,the occurs of skill-biased technical change will increase the skill premium in both short and long term in the situation of closed economy.It is worth noting that the increase in the relative demand for skilled labor through its replacement for unskilled labor occurs.Such replacement will happen in two ways.The first one is that the jobs that previously performed by unskilled worker will be replaced by the skilled workers due to the introduction of skill-biased technological progress.This will increase the demand of skilled workers.The second one is that the products that used to be produced by unskilled workers will be replaced by the products that produced by the skilled workers.And the demand of the skilled workers will grow faster with the increasing of the elasticity of substitution,thus leading to the increasing of skill premium.And we all know that the H-O-S theorem can partly explains the skill premium in developed countries,the explanatory power will be much weak in developing countries.With the rapid development of globalization recently,the trade liberalization mainly affects the skill premium through skill-biased technical change and the relative demand of the labor.But not affects the skill premium in developing countries dependently.In the case of trade liberalization,the reduction in the iceberg cost will not affect the skill premium in our country significantly.Such conclusion is much more different with the conclusions from developed countries.And also,the increased imports of capital equipment will improve the skill premium in China.That is because the skill-biased technical change only exists in the skilled-labor intensive sectors.Therefore,the import of the capital equipment will increase the demand of skilled labor in this sector.And then increase the total demand of the skilled labor in the whole economy in the situation that other conditions do not change.So we can conclude that the increase of the proportion of the imports in the total import-export can partly explain the skill premium in China.That is,the increase of the trade openness will affect the skill premium.Fourthly,the enrollment expansion of higher education in China would affect the skill premium through human capital effect and the labor market signal effect,in addition,the increase in the government expenditure on the education in the agriculture sector could speed up the supply rate of the skilled labor in this sector.Therefore,along with the free movement of labor between different sectors,the labor quantity in the urban sector will increase.So the increase in the government expenditure on the education in the agriculture sector is a kind of Pareto improvement.We also found that the impact of the enrollment expansion of higher education on skill premium is negative if we control other variables through a series of empirical analysis.Even without the introduction of other control variables,the impact of such expansion on the skill premium is not as significantly as rural-urban migration.This indicate that the enrollment expansion of higher education does not wide the wage gap between different skill groups.But the rural-urban migration could have great impact on the skill premium.This confirms the mechanism of the impact of rural-urban migration on skill premium empirically.Therefore,the government should increase investment in education for the rural labor force,and improve the skill level of rural labor force,thereby reduce the wage gap between different skill group.Fifthly,the implementation of the minimum wage levels has different impact on the skill premium in different areas.For example,in 1997,the proportion of skilled labor in Heilongjiang Province affected by the minimum wage is much higher than unskilled labor;while it is different in other provinces.But with the development of the economic and the society,the proportion of skilled workers affected by the minimum wage is far smaller than unskilled labor.The quintile regression results show that the minimum wage have strong impact on the wages of both skilled labor and unskilled labor wages.Therefore,we could not disguise how different the impact of the minimum wages on skill premium.At the same time,we use a quasi-experimental model of DID to analyze such effect.And the result shows that the implementation of the minimum wage will not affect the wage the skilled labor in a short run.But in the long run,the minimum wage could help to reduce the skill premium in China,and such effect is becoming stronger and stronger.The innovations of this paper are as follows:The first one is the innovation of the analysis percepts.Firstly,from the existing literature on skill premium,we can find that there are still no literatures explain the skill premium from the demand-supply � institution,which is a comprehensive analysis of the causes of the evolution of skill premium.This paper develops a logical framework of demand-supply � institution.Secondly,in the analysis of skill-biased technological change,this paper divide the whole national economic into two sectors�skilled labor-intensive sector and unskilled labor-intensive sector,rather than from the general level of the entire economy or analyze the entire manufacturing.This is undoubtedly a kind of innovation in the analysis of skill-biased technical change.Thirdly,from the existing literature study,there are still no research on the impact of rural-urban migration and the enrolment expand of higher education on the skill premium,for both the migration and the expand are unique phenomenon that only exist in China.So the analysis of this phenomenon will undoubtedly have important theoretical and practical significance.Although there are many domestic reseaches on the impact of the rural-urban migration on the income inequality,there not much on the impact of the enrolment of the higher education on skill premium,not to say the researches to analyze both of the phenomenons.Therefore,this is also an innovation.The second one is the innovative research methods,current research on existing domestic wage gaps among different groups are mainly from the aspects of different gender,different nature of their enterprises and the different aspects of household registration.Therefore,most of these studies use quantile regression,Oaxaca-Blinder decomposition to describe the wage gap.But this paper does the research on the skill premium,which is the wage gap between different skill groups from the logical framework of Demand-Supply-Insititution systematicaly.The third one is the innovation in the application of the theory.This article attempts to explain the basis of theoretical analysis using biased technological change,the impact of international trade on the skill premium.This paper also extends the traditional H-O-S model and makes it applicable to the situation in China and use Chinese empirical data.This maybe a innovation in this field.In this paper,the field we should continue to expand is to deepen the theoretical study of factors affecting skill premium,and we should do empirical research use a variety of methods.