Earnings Differentials and Ownership Structure in Chinese Enterprises

This article analyzes the determinants of earnings differentials among enterprises of different ownership in urban China in 1995, using an extended version of Oaxaca-Blinder decomposition methods. We find strong evidence of a nonintegrated multitiered labor market in China, pure ownership-related differences, and differences in hours worked being the major determinants of observed earnings gaps. Our results highlight different paying schemes among domestic enterprises as well as between domestic and foreign enterprises. We stress the dual nature of domestic production structures, workers in central state-owned enterprises (SOEs) being highly protected as compared to other domestic enterprises. We also emphasize that foreign-invested enterprises provide higher total annual earnings mostly at the cost of a much longer working time and do not offer higher hourly earnings than large state-owned enterprises. Our results provide explanations for the very low labor mobility observed in large overstaffed SOEs in the 1990s, a situation that led to massive layoffs at the end of the decade.