Financial Crisis And Wage Differential

Wage differential among heterogeneous workers has been a hot topic of research in China's labor market.In the past few decades,we have observed that the skill premium has increased,but after 2009,the skill premium observed from the data has begun to decline significantly.This unusual phenomenon has led researchers to explore the reasons behind it.This paper argues that the government's bail-out behavior after the financial crisis is the main reason for this change: Since 2009,the government has provided cheap credit to its preferred companies.Since most of these policy-oriented enterprises invest in unskilled labor-intensive infrastructure industries,the infrastructure industry has increased the demand for unskilled workers,prompting unskilled labor wages to rise,thereby reducing the skill premium.In order to carry out a theoretical analysis of this mechanism,this paper uses the classic DMP model as a benchmark model in a standard environment to model the process of matching heterogeneous labor with jobs.Different from most previous literatures,where skills are the only distinguishing point of heterogeneous labor,this paper distinguishes workers into three types from two dimensions of skills and experience,introduces the mechanism of skill upgrade and depreciation,and introduces government behavior on this basis to make the model more realistic.In quantitative analysis,I calibrated the model to match Chinese data.The results show that government-directed stimulus has a significant impact on wages,and especially promotes wage growth for low-skilled workers.Its crowding-out effect leads to a reduction in wage skill premium and an increase in experience premium.It is worth noting that government behavior affects college graduate wages.The crowding out effect is obvious,and college graduates are most negatively affected.At the same time,the introduction of skill upgrades and depreciation mechanisms explained the changes in wage differences to a certain extent: For high-skilled workers,the skills depreciation that may occur during continuous unemployment reduces their external choices when they lose their jobs,making them willing to sacrifice wages to maintain employment status;for college graduates,such a skill upgrade mechanism prompts them to be willing to lower their wage “threshold”,that is,retain wages,and obtain employment opportunities to achieve the possibility of upgrading to high-skilled workers.Such mechanisms have strengthened the motive for narrowing the wage gap.