Skill Formation, Employment Discrimination, and Wage Inequality: Evidence from the People's Republic of China

Abstract

This paper studies the impact of skill formation on employment opportunities and wages. Instead of international trade theory or technological progress theory, the paper focuses on labor “skill formation” to investigate the employment discrimination and skill wage inequality in the Chinese labor market. Based on data from the 2014 China Family Panel Studies (CFPSs), the study uses cognitive ability and noncognitive ability to measure skill formation. The empirical results show that skill formation has a positive impact on employment opportunities and wages. This result exhibits robustness in tests on monopoly industries and non-monopoly industries, except that there is a certain tendency toward wage equalization in monopoly industries. We also find employment discrimination resulting from skill differences in state-owned and non-state-owned sectors. A similar trend of wage equalization exists in state-owned sectors, while a significant trend of wage differentiation exists between high and low skills in non-state-owned sectors.