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Spatial disparity of skill premium in China: The role of financial intermediation development

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  • Lai, Tat-Kei
  • Wang, Luhang

Abstract

In China, the relative wages of high-skilled and low-skilled workers display huge variation across different regions. We examine whether financial intermediation development (FID) can explain such variation. Conceptually, better-developed financial intermediation helps financially-constrained firms raise new capital, which is usually skill-biased, 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.

Suggested Citation

  • Lai, Tat-Kei & Wang, Luhang, 2024. "Spatial disparity of skill premium in China: The role of financial intermediation development," China Economic Review, Elsevier, vol. 85(C).
    • Handle: RePEc:eee:chieco:v:85:y:2024:i:c:s1043951x24000622
    DOI: 10.1016/j.chieco.2024.102173
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    More about this item

    Keywords

    Financial intermediation; Misallocation; Skill premium; China;
    All these keywords.

    JEL classification:

    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development

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