Economic Liberalization with Rising Segmentation on China's Urban Labor Market

The massive downsizing of the state-owned sector and the concomitant impressive growth of the private sector at the end of the 1990s have altered the nature of the Chinese labor market. By bringing in more competition and market mechanisms, they have contributed to increasing labor turnover and competitiveness in market wages. Using two urban household surveys for 1995 and 2002, this paper analyzes the evolution of labor market segmentation in urban China, by applying an extended version of Oaxaca-Blinder decomposition methods. During the 7-year period, the sharp increase in earnings for all workers however shows substantial differences across ownership, economic sectors, and regions. We find strong evidence of a multi-tiered labor market along these three major lines and highlight increasing segmentation within each of the three dimensions, the gap between the privileged segments of the labor market and the most competitive segments widening over time