Individual wage determination in township, village and private enterprises in China

Abstract

China has been a centrally planned economy for about forty years but recent market-oriented economic reform has brought significant change, especially to the rural economy where there has been a remarkable development of township, village and private non-agricultural enterprises (the TVP sector). In 1971 the share of the TVP sector in China's industrial production was 3 per cent. By 1986 it had increased to 21 per cent (Byrd and Lin, 1990). The TVP firms operate in a more competitive environment compared with the state sector. However, they are still restricted by many economic and social-political constraints, particularly in the labour market. This thesis examines individual wage determination in the TVP sector in the year of 1985. Up to 1985, the general situation of the TVP labour market appeared to be a mixture of old and new systems. On the one hand, the level of employment was mostly controlled by the community authorities. On the other hand, the majority of firms had decision-making power over wage setting. The emphasis of this thesis is placed on the applicability of the human capital model to the TVP wage determination. It is found that in the male labour market, labour market experience plays a very important role in the individual wage determination. However, the importance of the different experience variables (agricultural experience, firm tenure, other non-agricultural experience) varies between different employee groups (staff and workers). Agricultural and the other non-agricultural experience play an important role in staffs wage determination while firm tenure dominates other experience variables in workers' wage determination. The most unusual result for the total male sample analysis is an insignificant effect of education on individual wage determination. The analysis for the piece rate and time rate groups separately suggests that this insignificant effect reflects education having no impact on increasing labour productivity in the TVP sector due to most of the jobs being unskilled. However, a further analysis involving consideration of the effect of institutional change displays a new picture: education in fact has a significant impact on wage determination for the group of people who found their job by their own effort, while it is insignificant for those who were assigned to their job. The thesis also manages to show that these different results both reflect a labour productivity effect. Apart from these, the role of education as a screening device for the TVP job assignment is also confirmed. Women are paid 20 per cent less than men in the TVP sector. This pay differential arises mainly because of within occupational discrimination. Occupational segregation does not contribute heavily to this wage differential. A comparison with other studies shows that the experience-earnings profile for the TVP sector is like the case in the United States rather than in Japan, though the employment system in the TVP sector is similar to that in Japan. Show more