Green technological progress, agricultural modernization, and wage inequality: Lessons from China

Green technological progress (GTP) is crucial for environmental protection and economic growth in China. Over the past decades, China made huge GTP which exerts a far‐reaching consequence on economic and social development. However, a paucity of research investigates the distributional effect of GTP. Meanwhile, we incorporate agricultural producer service sector into a three‐sector general equilibrium model to reflect the modernization of small‐scale agriculture. The agricultural producer service sector that acts as an intermediate sector can facilitate the utilization of intermediate inputs indirectly. To desalinate this process, a two‐layer vertical production structure is established: parts of manufacturing goods are utilized by the service sector, outputs of which are intermediate inputs that could substitute labor in agriculture. Theoretical analysis shows that GTP increases both wage of skilled labor and unskilled labor. Nevertheless, GTP generates a greater impact on the wage of skilled labor than unskilled labor, leading to widening income disparity. Then, we examine the impact of GTP on wage inequality using a balanced panel data covering 30 provincial units in China during 2000–2019. In line with our theoretical conjecture, we find strong supportive evidences that GTP significantly widens the wage inequality.