E C O N O M I C T R A N S I T I O N A N D L A B O R M A R K E T R E F O R M I N C H I N A Xinxin Ma Economic Transition and Labor Market Reform in China Xinxin Ma Economic Transition and Labor Market Reform in China Xinxin Ma Hitotsubashi University Tokyo, Japan ISBN 978-981-13-1986-0 ISBN 978-981-13-1987-7 (eBook) https://doi.org/10.1007/978-981-13-1987-7 Library of Congress Control Number: 2018953333 © The Editor(s) (if applicable) and The Author(s) 2018 This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. 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The registered company address is: 152 Beach Road, #21- 01/04 Gateway East, Singapore 189721, Singapore To my family and friends P reface China has experienced rapid economic development and huge economic growth since 1978. The main reason for this is that the Chinese govern- ment promoted transition of the economic system from a planned econ- omy to a market-oriented economy. The Chinese government enforced gradualism reform in which the government retains and controls the pub- lic sector (e.g. state-owned enterprises), and simultaneously promotes the private sector (e.g. privately owned enterprises, foreign-owned enterprises, and the self-employed sector). No other country with a transition econ- omy, including Russia and the Central and Eastern European states, fol- lowed this path. This uniquely gradual reform led to the mixed ownership system in China and to new segmentation problems in the Chinese labor market. For example, the labor market is segmented into both public and private sectors; into the monopoly industry sector and competitive indus- try sector; into migrant and local urban resident groups; and into the formal sector and informal sector. This is a significant area of academic debate. There is a set of unique issues in these labor market segmentations that only occurred in China: they generate valuable research questions to help us understand an imper- fect competitive market and transition economics. The government could usefully address the segmentation problems in the Chinese labor market that may contribute to severe income inequality and harm social fairness and welfare in China. Thus Part I of this book focuses on these special issues related to the segmentation of the Chinese labor market during the economic transition period from 1978. The overarching purpose of this vii viii PREFACE book is to investigate the causes and consequences of Chinese labor mar- ket segmentations. As well as the transition from a planned economy to a market economy, the government implemented a set of new policies to address problems related to segmentation of the labor market and to enforce system reforms, for example, the minimum wage system implemented from 1993, the public pension system reformed from the 1990s, and the higher education expansion policy promoted from 1999. Did these policy changes influence labor market outcomes? Part II of this book analyzes the influence of these policies on household and individual behaviors. The results provide reli- able evidence to evaluate these policies and generate some suggestions for reform. This policy evaluation not only contributes to academic debate but also provides evidence on which to base new governmental policy. This research was supported by the Japan Society for the Promotion of Science (JSPS) with its grant-in-aid for scientific research (grant numbers: 25243006 and 16K03611) from 2012 to 2018, and the Joint Usage and Research Center, Institute of Economic Research, Hitotsubashi University from 2015 to 2018. I am grateful to Professor Li Shi (Beijing Normal University) for providing the CHIPs data, and giving so many valuable suggestions and comments since 2004. I acknowledge Professor Atsushi Seike (Keio University), Professor Yoshio Higuchi (Keio University), Professor Ryoshin Minami (Hitotsubashi University), and Professor Katsuji Nakagane (The University of Tokyo) for their teaching and coach- ing that opened the world of labor economics, development economics, and transition economics and led me to become an Economics researcher. I would like to thank Professor Jun Zhang (Fudan University), Professor Go Yano (Kyoto University), Professor Kazufumi Yugami (Kobai University), Professor Kai Kajitani (Kobai University), and Professor Quheng Deng (Chinese Academy of Social Sciences) and the conference participants for their many helpful comments in 2015 First World Congress of Comparative Economics (WCCE) at Roma Tre University; the 2015 International Conference titled “Economic Transition and Income Inequality in China” at Kyoto University; the Annual Conference of the Japanese Association for Chinese Economy and Management Studies, Tokyo; the 2015 6th Biennial International Conference on Transition and Economic Development (TED) at Fudan University; the 27th CEA (UK) and 8th CEA (Europe) Annual Conference held at the University of Duisburg-Essen; and the 2016 14th European Association of Comparative Economic Studies (EACES) Conference at the University PREFACE ix of Regensburg, Germany. I would like to express my gratitude to my col- leagues and friends, Professor Ichiro Iwazaki and Professor Kazuhiro Kumo, for their helpful suggestions and encouragement for my research, and colleagues at the Institute of Economic Research (IER), Hitotsubashi University, for giving me such an excellent research environment and sup- port. I greatly appreciate the staff at Palgrave Macmillan for their interest in my research work. Particularly, I acknowledge Dreyer Jacob, Nirmal Kumar Gnana Prakasam, and Jasper Asir for their encouragement and editing work. Finally, I am deeply grateful to my family for their warm and strong support of my life and work. Tokyo, Japan Xinxin Ma May 30, 2018 c ontents 1 Introduction 1 1.1 B ackground: Economic Transition and Change in Labor Policies and Labor Market Structures in China 1 1.2 T he Main Arguments of the Book 8 1.3 S ignificance of the Book 14 References 15 Part I Labor Market Reform in China: Consequence and Cause 17 2 Economic Transition and Change of Wage Structure 19 2.1 I ntroduction 19 2.2 I nstitutional Background: Changes in China’s Wage Policy and Wage System 20 2.3 T he Channels and Empirical Studies on the Influence of Education on Wage 23 2.3.1 T he Channels of the Influence of Education on Wage 23 2.3.2 P revious Empirical Studies on the Return to Education in China 24 2.4 M ethodology and Data for Estimation of Return to Education 25 2.4.1 M odels 25 2.4.2 D ata 26 xi xii CoNTENTS 2.5 E stimated Results of Wage Structure 30 2.5.1 R esults of Wage Function at Mean Wage Level 30 2.5.2 R esults of Return to Education by Wage Percentiles 41 2.6 C onclusions 42 Appendix 43 References 45 3 Determinants of Wage Gap Between Public Sector and Private Sector 49 3.1 I ntroduction 49 3.2 M ethodology and Data 51 3.2.1 M odels 51 3.2.2 D ata 53 3.3 E conometric Analysis Results 56 3.3.1 H ow Large Are the Wage Gaps Between the Public Sector and Private Sector? 56 3.3.2 A re There Wage Structure Differences Between the Public and Private Sectors? 58 3.3.3 W hat Determines the Wage Gaps Between the Public Sector and Private Sector? 63 3.4 C onclusions 66 References 68 4 Monopoly Industrial Sector and Its Influence on the Wage Gaps Between Migrants and Local Urban Residents 71 4.1 I ntroduction 71 4.2 H ukou System Reform and Policy Change for Monopolistic Industries in China 72 4.2.1 H ukou System Deregulation in China 73 4.2.2 M onopolistic Industries in China 74 4.3 T he Channels of the Influence of Industrial Factors on the Wage Gap: Inter-industry Differentials and Intra- industry Differentials 75 4.3.1 T he Channels of the Influence of Industry Sector on the Wage Gap Between Migrants and Local Urban Residents 75 4.3.2 S ummary of Empirical Studies on the Wage Gap Between Migrants and Local Urban Residents 78