Skilled-Unskilled Wage Gap in China

Economic reforms of the late 1980s have contributed to rapid economic growth in China. While the overall standard of living has improved, economic growth has also resulted in an increase in income inequality. Rising income inequality can increase social tensions that can impede further economic growth. By making use of firm level panel data, this paper focuses on the impact of increased market competition and trade liberalization on skilled-unskilled wage gap in China. A theoretical model is used to argue that trade liberalisation and market competition can affect skilled-unskilled wage gap in the shortrun as well as the longrun. The empirical analysis presented in this paper shows that increased trade liberalisation has contributed to an increase in skilled-unskilled wage gap in China. However, increased market competition has the opposite effect