Dual Labor Market: The Wage Gap Between Formal and Informal Workers

With the advancement of market-oriented reforms, the number of informal workersInformal worker has increased considerably, and the problem of discriminationDiscrimination against informal workersInformal worker has become severe in ChinaChina. However, evidence on the wage gapWage gap between formal and informal workersInformal worker in the Chinese context remains scarce. Using national longitudinal survey dataLongitudinal survey data from the China Family Panel StudiesChina Family Panel Studies (CFPS) for 2014 to 2020, this study investigates the determinants of the wage gapWage gap between formal and informal workersInformal worker in ChinaChina. The study yields three main conclusions. First, the wage level of formal workersFormal worker is generally higher than that of informal workersInformal worker. Second, both the endowment and return effects contribute to the formation of the wage gapWage gap, with the influence of the former being greater than that of the latter. This suggests that differences in endowment are the primary factor in the formation of the wage gapWage gap between formal and informal workersInformal worker. Third, the wage gapWage gap between formal and informal workersInformal worker is significant (insignificant) in the private (public) sector. The return effect on the wage gapWage gap in the private sectorPrivate sector is larger than that in the public sectorPublic sector, indicating that the discriminationDiscrimination against informal workersInformal worker in the private sectorPrivate sector is more severe than that in the public sectorPublic sector, thus widening the wage gapWage gap.