Spatial Disparity of Skill Premium in China: The Role of Financial Intermediation Development

In China, the relative wages of high-skilled and low-skilled workers display huge variation across different regions. We examine whether financial intermediation development can explain such variation. Conceptually, better-developed financial intermediation helps financially-constrained firms raise...

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Bibliographic Details
Published in:BOFIT discussion papers 2022-02, Vol.2022 (6), p.1-22
Main Authors: Lai, Tat-kei, Wang, Luhang
Format: Article
Language:English
Subjects:
Banking industry
Central banks
Economic reform
Education
GDP
Gross Domestic Product
Labor market
Loans
Public enterprise
Regions
Securities markets
Skilled workers
Trade liberalization
Wage differential
Wages & salaries
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Summary:In China, the relative wages of high-skilled and low-skilled workers display huge variation across different regions. We examine whether financial intermediation development can explain such variation. Conceptually, better-developed financial intermediation helps financially-constrained firms raise new capital, which is usually skilledbiased, resulting in an increased demand for skilled labor and skill premium. Using a cross-section of workers from the 1% Population Survey of 2005, we find consistent evidence; besides, the relationship is stronger among workers in industries with higher capital-skill complementarity and in non-state-owned enterprises. Overall, our results suggest that the financial market plays a role in explaining skill premium in China.
ISSN:1456-4564
1456-5889