Technological Change, Outsourcing, FDI On Wage Gap

According to H-O model and S-S theorem, trade increase the return of abundancefactor and decrease the return of rare factor. While developed country rich in skilledlabor and developing country rich in unskilled labor, trade would expand wage gap indeveloped country and shrink wage gap in developing country. Actually since thenineteen eighties, wage gap has been expanded both in developed country anddeveloping country. The expansion of wage gap in developing country usuallycontributes to skill-biased technological change and outsourcing.Since the reform and opening policy, China has been taking part in internationaloutsourcing deeper and deeper and attracting more and more FDI. Thus necessarilyhave impact on wage gap. Although reasonable wage gap is the objective requirementand inevitable result of market economy, excessive wage gap would harm labor’senthusiasm and social equality. A correct understanding of the determinants of wage gaphas important practical significance to improve people’s living standard and maintainsociety stable.Under the model of Feenstra and Hanson (1996), we research the impact ofskill-biased technological change, outsourcing and FDI on wage gap with the panel dataof China’s manufacturing industry. Results show that:a. Based on the decomposition of Bernard, wage gap of China was rising caused byskill-biased technological change within sectors. Skill-biased technological changeincreases the demand of skilled labor and then widens wage gap.b. Consistence with the forecast of Feenstra and Hanson (1996), the outsourcingfrom developed country is high technique concentration and increase the demand ofskilled labor and then widen wage gap. Compared with low-end technologicaloutsourcing, high-end technological outsourcing has greater impact on wage gap.c. Technological change and outsourcing are all the determinants of wage gap, andtechnological change plays a key role. While R&D input increasing1%expands wagegap for3.53%, outsourcing increasing1%widens wage gap for1.71%.d. The FDI in China is in high-end industry but low-end chain and increase thedemand of unskilled labor thus shrink wage gap.e. The supply of skilled labor shrink wage gap through price effect.According to the above analysis, this paper suggest, accept high-end technological outsourcing actively to promote industry upgrading. Absorb FDI continuously and payattention to the quality, guide FDI flow from low additional value, low-end chain tohigh additional value, high-end chain. Increase human resource investment to increasethe supply of skilled labor. Perfect the income distribution mechanism and improvesocial security level. Increase the fund of R&D to improve technical level of the wholesociety, shrink wage gap fundamentally.