Trade Openness And Residual Wage Inequality

Since the 21st century,China has experienced great change in its trade openness.At the beginning of the century,becoming a member of the World Trade Organization accelerated the process integrating into the world economy.Affected by the financial crisis in 2008,China's export declined,and even experienced negative growth once.As the recovery of the world economy,export recovered gradually,with the growth rate greatly slowing down.Changes in the trade openness can make a difference to the structure of labor market,and then change the wages and the disparity of wages.Residual wage refers to the residual of wage in the Mincer wage regression function,representing the part of wage which cannot be explained by a worker's individual characteristics.It normally accounts for two-thirds of wage,making the study of how trade openness affects residual wage inequality extremely important to the study of wage inequality.This paper classifies the CHIP data of 2002,2007 and 2013 into four groups according to the education level and working experience of urban residents.Building on the foundations of previous research,this paper brings the index measuring trade openness and other relevant city variables as explanatory variables into the classic wage equation,and adopts the two-stage least square approach in empirical analysis.Besides,this paper also applies the DFL counterfactual decomposition method to decompose the wage residual inequality.Statistical description of data reveals that,the urban residential wage inequality of China had been enlarging indeed during 2002 to 2007,but was in the trend of decreasing during 2007 to 2013,while the level of wage residual inequality had been increasing continually;the difference of residual wage accounts for over 75%of overall wage difference,making the wage difference from unobservable characteristics more important.Empirical research and robustness test show that has a significant positive pulling effect towards China's urban residential wage level and the residual wage in 2007 and 2013.And it reduces the wage inequality but increase the residual wage inequality between the higher and lower educational group in 2002,while the effects in 2013 is just the opposite.And the decomposition results of wage residual inequality show that price effects have a far bigger influence than structural effects,which means that the change of residential characteristics return rate is the main cause of enlarging wage residual.