Changes of wage differentials by occupations and educational qualifications in Hong Kong : analysis and implications for public policy

The dramatic increase in the wage differentials between skilled and unskilled workers observed in many developed countries have received much attention from economists. In Hong Kong, however, few empirical studies have been carried out to explain the growing wage gap. This study uses both published and unpublished data to investigate the trend of wage gaps between occupational classifications and educational qualifications, and to test a variety of hypotheses about the sources of rising wage gaps. The results show that the wage differential by skill levels decreased in the first half of the 1980s, began to increase in the late 1980s, and the increase has accelerated during the early 1990s. By using the method of cointegration analysis, I found that the share of manufacturing employment in the total employment, the capital labour ratio, the effective exchange rate, and domestic export of manufacturing goods as a percent of GDP share the same long-run trend with the wage gaps, and therefore can be treated as the factors contributing to the widening wage inequality in Hong Kong